Reports & Insights
Mixed Messages Keep the Global Economy Interesting
October 31, 2018
This week was a busy time for new economic data from around the globe, the kind that can help companies make some critical year-end decisions on everything from new branding to key capital purchases. But the third quarter reports numbers are trickling in, with few answers forthcoming.
To be sure, economists appear to agree that the global economy is still divided in the world’s three biggest countries and regions. With trade concerns and geopolitical tensions still rising, for example, the latest released data suggests that China and the Eurozone are facing an economic slowdown. But in the U.S, the era of strong growth across the board continues— for now, at least.
After that, though, most the new news can only mean more head-scratching. While third quarter GDP in the U.S. expanded, stock markets there of course experienced a massive sell-off in October. Some economist pointed to warnings about the mid-term elections there, but no one can know for sure. Still, despite the conflicting economic headwinds, many still see one key trend continuing around the globe: the tight labor market. “ I know the economy took a dip in Europe,” says Ben Frost, who leads Korn Ferry’s global Rewards Product business, “but the labor market is still tight and getting tighter, so leaders need to keep their eyes on the ball when it comes to talent.”
We took a look what important economic data points say at the moment, and what they mean for leaders as the year winds down.
Europe’s economy is struggling. The region’s economy grew at its lowest level in over four years in the third quarter, coming in at less than one-fourth of a percentage point. Some countries performed better than others, though no country performed particularly well. Italy’s economy, for instance, didn’t grow at all in the third quarters. France’s economy, by contrast, turned in one of the better performances, even though it grew just 0.4%. Economists fear two consecutive quarters of slowing growth could be a precursor to a wider recession. “The mantra for leaders in Europe in recent years has been to do more with less,” says Kirsta Anderson, senior client partner with Korn Ferry in London. “But as they have tried to do that, however, they have in fact been doing more less well. Those who have found their way out of this paradox have simply stopped doing some things.”
The trade war is hitting China hard. Manufacturing activity in China hit an 8-month low in October,sparking concerns that the world’s second-largest economy is starting to show signs of contracting. Last month China’s economy slowed to its lowest level since the first quarter of 2009. It also marked the third straight quarter of declining growth for the country. According to Michael Distefano, Korn Ferry’s president in the Asia Pacific region, slowing growth is tilting hiring trends away from multinationals and towards state-owned enterprises. “We’ve seen continued strength in state-owned enterprises across all sectors looking to bring on people at all levels, which represents a shift away from multinationals over the past several quarters,” he says.
The U.S. grows heading into the mid-terms. Consumer spending and personal spending both increased in October, while expectations are that the unemployment rate will hold steady or decline further when data is released Friday. October’s trifecta of results follows third quarter economic growth of 3.5%, keeping the U.S. on track for its best year economically since 2005. Economists are concerned, however, that paltry wage and personal income growth could curtail consumer spending and, in turn, slow growth in the coming months. "Organizational leaders still have concerns," says Korn Ferry senior vice president Stu Crandell. "They are continually making decisions about the pace of change and managing risk associated with it." Melissa Swift, a senior client partner for digital solutions at Korn Ferry, says that leaders must prepare for the next downturn now by looking at ways to redeploy workers rather than merely laying them off. At the same time, Swift says executives need to resist cutting “innovation budgets” since that may indirectly compromise their futures.