Corporate revenue projections have proved surprisingly resilient this year in the face of economic crisis, political uncertainty and natural disaster. Only 14% of the 160 large companies around the world participating in a Greenwich Market Pulse earlier this month have revised revenue projections downward as a result of what one respondent refers to as ‘many black swans in a short time’.
Among the geo-political events and macroeconomic changes unsettling global markets this year have been the Japan earthquake, the ongoing European sovereign bond crisis, Middle East turmoil, US budget woes and others.
Amid these risks, only 12% of companies across Asia and in Europe have made downward revisions to revenue forecasts since the start of 2011. In the US, 17% have cut revenue projections. Among companies that have revised revenue forecasts, roughly half lowered their projections by 1-5% and approximately half reduced forecasts by 6-10%.
Threats to Performance
At a global level, companies perceive the ongoing European sovereign debt crisis and conflict in the Middle East as the most important risks to company performance over the next six to 12 months. Of course, these perceptions vary significantly by region and sector:
- In Asia, companies see inflation as the biggest threat to near-term performance: 62% of Asian companies cite a potential acceleration of the inflation rate as an important risk to their performance in the next six to 12 months. Also perceived as pressing risks to corporate performance in Asia are the Japan earthquake and Middle East turmoil – each of which was cited as a risk to near-term performance by 48% of Asian companies. Next on that list: a potential slowdown in China’s economic growth, which was cited by 45% of Asian companies.
- Fifty-three percent of European companies see the ongoing European sovereign debt crisis as the biggest threat to near-term performance. That share easily tops Middle East turmoil (42%) and the Japan earthquake (31%) on the list of European companies’ top concerns.
- US companies see many risks to near-term performance, including the European sovereign debt crisis and Middle East turmoil, both cited by 44% of US companies as an important risk to performance in the next six to 12 months, a potential slowdown in Chinese growth, cited by 38%, a possible flare-up in inflation (34%) and the Japan earthquake (also 34%).
- Industrial companies see their near-term performance as increasingly exposed to global political/economic risks. Approximately 65% of industrial companies see turmoil in the Middle East and the resulting potential for continued increases in oil prices as a significant risk to performance in the next six to 12 months. In addition, 42% of industrial companies see the Japan earthquake as an important near-term risk factor. Many of these are Asian companies suffering from the direct consequences of the quake. “Any delay in the restart of Japan’s manufacturing activity will hurt the entire supply chain,” said a representative of one large Asian industrial company. “This will have serious impact on my company’s growth.”
- Concerns about risks stemming from the earthquake were hardly limited to Japan. “Each crisis demonstrates how little we know about our supply chains and the global implications of their disruptions,” noted a respondent from a US industrial firm. “Understanding supply chain will need to become everyone’s priority.”
- Financial firms cite three main risks to near-term performance: inflation, the European sovereign debt crisis and the impact of financial regulation reform, each of which is cited as a significant risk by 47% of financials participating in the study.