Inflated opinion

Neil Eisberg, Editor

Each January, business leaders and politicians from across the world gather in Davos, Switzerland, for the World Economic Forum (WEF), to look at what the coming year may hold for the global economy. And 2023 is no exception, with a focus on the inflation that is hitting every national economy, driven by Russia’s invasion of Ukraine just after the 2022 WEF and its impact on energy costs, as well as the ongoing problem of Covid and decarbonisation.

Inflation is set to stay in Europe and Latin America, according to a unanimous consensus of 22 senior economists interviewed by the WEF. According to the WEF, the proportion of respondents forecasting inflation in Europe grew from 47% to 57% since September 2022, while for the US, there was a sharp decrease from 43% to 24%.

The majority of the economists believed a global recession is likely in 2023. All of them expected weak or very weak growth in 2023 in Europe, while 20 expected weak or very weak growth in the US.

This picture was echoed for the UK in a PwC survey of UK CEOs who expect the tough times currently being experienced are likely to worsen over the next years. It should be noted that the respondents came from across the whole spectrum of UK industry, not the chemical industry alone, but the sentiments expressed will be familiar to any chemical industry executive.

Some 71% of respondents said they thought global economic growth will decline in 2023, while 84% thought UK economic growth will decline. Of total respondents, 29% felt highly or extremely exposed to macroeconomic volatility while 40% felt highly or extremely exposed to inflation.

In responding to these challenges, 60% said they have increased their prices, while 52% have reduced their operating costs and 42% said they had found alternative suppliers.

As regards investment, a much lower proportion, 21%, said they have slowed investments. As Marco Amitrano, PwC Managing Partner and Head of Clients & Markets, said: ‘Whatever short-term cuts CEOs have planned, they cannot rein in investments in talent and technology. They are doubling down on those because the need to transform their business for long-term growth is inescapable.’ Technology investments are being made with an emphasis on re-invention, by 61% of CEOs, rather than maintaining existing business, as reported by 39%.

Among investments in technology, those involved in digitalisation are being prioritised, including artificial intelligence (AI), cloud and data and analytics. Of the CEOs surveyed, 86% said they are investing in automating processes and systems; and 77% are investing in the deployment of advanced technologies such as cloud and AI.

Amitrano also noted that skills are a major part of the equation, as they are in short supply ‘and tech investments carry risk if made without the right human insight’. In particular, 40% of UK CEOs believe the tech skills and understanding of their teams lag behind the demands of their strategic objectives – a gap that could widen without urgent action.

To meet this challenge, 74% of respondents said they are upskilling their workforce in key areas, while 56% are upskilling their workforce in technology. Investment in retaining technology talent was reported by 54% of CEOs and investment in attracting technology talent was noted by 48%.

Although cost-cutting measures have in the past included staffing reductions or lay-offs, the current UK situation has not seen any major staffing changes across the economy. Just 16% of the CEOs surveyed said their organisation had made reductions, while 59% said they had no intention of making lay-offs. PwC notes that there is a far more significant focus on boosting their team’s ability to drive long-term growth and transformation.

However, as Kieragh Nelson, PwC Partner, Execution Managed Services, pointed out: ‘In many instances, they can’t even wait until they’ve upskilled their workforce or recruited the right candidates.’ The only option is to look at other ways to meet their urgent needs for technology skills, including partnering with other organisations, particularly as regards digital implementation. ‘They need a digital business partner who can provide agile and scalable delivery services, to give them critical capabilities now, while working with them to develop in-house capability for the long-term,’ added Nelson.

The biggest long-term challenge after the economy is decarbonisation to deliver the carbon net zero target of 2050. Since 2022, when around a third of UK CEOs reported plans to deliver net zero, the proportion has increased to 65% now reporting strategies that are measurable and data driven.

As PwC Sustainability Practice Leader, Lynne Baber pointed out: ‘Embedding positive change into business strategy – so profit and purpose are not mutually exclusive – requires understanding, insight, leadership and robust data and reporting against consistent metrics. That is how organisations will show where change is needed, provide confidence progress is being made and support decisive interventions where it isn’t.’