Businesses in Mexico and Central America see low risk of recession -survey

Business leaders in Mexico and Central America say there are low expectations of a recession in their countries and are confident in the growth of their companies.

However, according to the VIII KPMG CEO Outlook Survey, they recognize that there is a slowdown.

In the next 12 months, only 34% in Central America and 32% in Mexico believe there could be a recession in their countries.

On a global scale, 86% of the participants believe there will be an economic recession, although 58% expect it to be “slight and brief.” Therefore, 76% feel prepared to overcome its effects.

KPMG’s global survey covered 1,325 managing directors or CEOs, all selected with an annual turnover of at least US$500 million. One-third of the sample sells more than US$10 billion.

For the regional data, KPMG interviewed 50 CEOs in Mexico and 45 CEOs in Central American countries. The research took place between July 12 and August 24, 2022.

Asked about the economy’s confidence in their own countries, the level in Central America reaches 94%, well above the global average of 85% and even above Mexico’s 80%.

“We see a higher rate of confidence, particularly in Central America, about the growth of the economy in their country,” said Victor Esquivel, managing partner of KPMG in Mexico and Central America.

And what about their organization’s performance? In this aspect, 84% of CEOs in Central America say they will grow, a level slightly below the global average of 85% and higher than 76% of those in Mexico.

“Leaders at the international level and regional leaders recognize a level of confidence, but we are also seeing a slowdown,” Esquivel analyzed.

In a shorter-term outlook, over the next six months, 73% of CEOs or directors are confident in the global economy’s resilience, up from 59% in February’s exercise.

HOW ARE COUNTRIES PREPARING?

How are companies coping with the threats of a recession? Globally, 39% have frozen hiring, and 46% are considering job cuts in the coming months.

But the concern is not limited to reducing the size of teams, but rather how to make them more competitive.

It is why a scenario of competition for talent with the necessary experience and skills is taking shape, especially in digitalization.

Inorganic growth is emerging on the horizon as a strategy. Twenty-six percent expect to enter into a strategic alliance, 11% a merger or acquisition, and another 11% a joint venture.

For KPMG, this is happening because leadership is beginning to recognize the need to expedite steps toward digital transformation, environmental sustainability, and other related issues.

“To grow, organizations have to think outside the box. Particularly to engage in digital transformation projects, improve customer experience or even adopt schemes to contribute or reduce the impact, for example, environmental,” Esquivel said.

The focus on the main risks has also changed. In 2021, the top spots were cybersecurity, supply chain disruptions, and climate change; in 2022, it is emerging technology, operational, regulatory, and reputational risks.

“This speaks to the rapid transformation that the market requires, the consumption patterns of customers, and the demands also of suppliers to be able to supply value chains,” the KPMG regional representative noted.

Companies are also projecting increasing scrutiny from stakeholders. Seventy-three percent globally, 76% in Mexico, and 77% in Central America think that the transparency demanded by third-party stakeholders will continue to accelerate over the next three years.

Esquivel weighed that overall the opportunities outweigh the challenges this year. Mexico and Central America are rich in human talent, with a demographic bonus and the need to raise education standards.

“We generally have great talent on the technology side,” he said. The key is to connect current consumption patterns with the visualization of the future.

“We will also be seeing new business models looking to solve these concerns on environmental, social, and governance issues,” he commented. Among these, fintech has the potential to improve social inclusion.

Is teleworking coming to an end?

Companies with committed teams perceive better profitability and productivity, increasing reputation, said Luis Laguerre, managing partner of KPMG in Panama.

Sixty-two percent of CEOs in Central America, 56% in Mexico, and 65% globally expect all their staff to work full-time in the office within the next three years.

“This implies that if there is a percentage of organizations that will have a hybrid situation or status, and we see it in the sense that 28% of those who responded to the survey, 42% in Mexico and 29% in Central America, indicate that this return to face-to-face will be in a hybrid way,” Laguerre said.

With information from Bloomberg