Aussie CEOs more optimistic than overseas, despite tougher 2023 - PwC Australia’s 26th CEO Survey

• PwC survey of 4,410 CEOs in October and November of 2022 across all major regions including Australia
• 70% of CEOs expect Australian economic growth to decline 2023
• Nearly three quarters of CEOs in Australia say attracting and retaining top talent are the biggest challenges, with cyber risks a close second
• 86% are investing in upskilling their workforce
• 77% are considering increasing investments in cybersecurity or data privacy to mitigate against exposure to geopolitical conflict
• 3 out of 10 CEOs in Australia believe their company won’t exist 10 years from now if they continue on the same path

Australia’s CEOs expect local and global business conditions in 2023 to be more challenging than last year. However, after coming through a period of digital disruption, pandemic shutdowns and economic shocks, CEOs are cautiously optimistic they can navigate the inflation challenges and still achieve their companies’ long-term growth plans.

Insights from PwC Australia’s 26th CEO Survey showed that while 70% of CEOs expect the Australian economy to slow down in 2023, businesses are taking actions to mitigate declining economic growth and rising cost pressures, while trying to avoid reductions in their workforces, deals or investments. Companies effectively maintaining profit margins and delivering results in the short term during the current economic environment will be better positioned for growth long term.

The biggest concern Australia’s CEOs highlighted in the survey is ensuring their companies have the right skill sets - about three quarters (72%) said that issues related to attracting and retaining the best people are the biggest challenges facing their business in 2023, with cyber risks a close second (70%).

CEOs in Australia are more worried than their global peers about skills shortages, cybersecurity and climate change, and consequently are more focused on investing into upskilling and decarbonisation than their global counterparts, while automation and AI are high priorities - 86% said they are investing in upskilling their workforce. They are also increasing cybersecurity in response to geopolitical conflict with 77% considering increasing investments in cybersecurity or data privacy to mitigate against exposure to geopolitical conflict.

On the climate change front, while Australian businesses are ahead of global peers on progress towards decarbonisation, they recognise there is still more work to do to address climate risks with 48% of companies investing in decarbonising their business models compared to 31% globally.

Industry disruption is expected to come more from regulation and skills shortages than from new entrants. Meanwhile, less than half are collaborating outside of their industry to find new sources of value or to solve societal problems. Three out of 10 CEOs in Australia believe their company won’t exist 10 years from now if they continue on the same path.

PwC Australia’s CEO Tom Seymour said, “Business leaders in Australia expect both local and global business conditions in 2023 to be tougher than last year. However, I’m optimistic that Australian businesses will be able to mitigate the short-term impacts from inflation and interest rate rises.

“I believe the more difficult leadership challenge is keeping up the pace of business transformation. Our survey clearly shows the biggest problem facing CEOs in Australia is ensuring our companies have the right skill sets. With skills driving business transformation, it’s not only an issue for right now - it’s one of the biggest drivers of disruption over the next decade.

“As leaders implement new technologies including automation and AI, they need to upskill their current workforce and rethink who they hire in the future. CEOs need to ensure their organisation’s workforce management is keeping up with the pace of the technological changes they are implementing rather than slowing them down. We need to upskill and reskill our workforces, and develop new talent pipelines for the skills we’ll need in the future.”

Economic outlook and business confidence

Australia’s economic growth, much like the rest of the world, is slowing in 2023, largely due to shocks experienced around the globe coupled with higher interest rates. However Australia’s CEOs are more optimistic than their overseas counterparts and anticipate inflation pressures will be transitory - an issue potentially only for the next 12 months. Australia’s economic success and recovery through the COVID-19 pandemic meant business conditions remained stronger when compared with peers in North America, Europe and even Asia.

Amy Auster, Chief Economist and Insights Officer at PwC Australia said, “Australian businesses have been able to adjust to the current economic conditions because consumption in Australia has remained strong, despite higher inflation, higher interest rates and lower household disposable income. The durability of consumer appetite in the face of these headwinds can be chalked up to a tight jobs market that offers confidence about the outlook for household income, alongside the savings that households accumulated during the pandemic.

Less than 25% of CEOs in Australia anticipate job cuts or pay cuts which Ms Auster said is a positive signal for the broader Australian economy and the Australian consumer going forward. “I anticipate that as the economy starts to slow and international migration picks up, we may see the churn in the jobs market slow and pressures on wages start to ease.”

While 84% of Australia’s CEOs said they are moderately to extremely confident about their company’s prospects for revenue growth over the next 12 months, when compared to previous years there has been a distinctive dip in business confidence compared to the optimism of the year before as Australia emerged from COVID-19 lockdowns. However, despite the immediate challenges, CEOs in Australia are still broadly confident in their own company’s revenue growth, down from the year before but more positive than during the Global Financial Crisis (GFC).

Cybersecurity increases in response to geopolitical conflict

Australia’s CEOs see the greatest impact to their businesses from geopolitical conflict coming from cyber threats, however a significant proportion are rethinking their global markets, products and supply chains. Almost four in five CEOs are increasing investments in cybersecurity or data privacy in response to geopolitical conflicts, compared to 48% globally.

Aside from cyber risks, CEOs in Australia overall seemed less concerned than their global peers about the potential impact of geopolitical risks and resulting economic uncertainty, including less likelihood to adjust their supply chains (38% in Australia compared to 46% globally).

Australian businesses are slightly ahead of global peers on climate change

Companies in Australia are slightly ahead of their global counterparts when it comes to work in progress to prepare for climate risks. Significantly, 66% of companies in Australia have already or are currently developing a data-driven, enterprise-level strategy for reducing emissions and mitigating climate risks, compared to 58% globally.

Mr Seymour said, “Our survey data shows there are opportunities for businesses to broaden collaboration outside of traditional industries and work together with governments, academics, entrepreneurs and the not-for-profit sector.

“Business leaders have already been put to the test over the past few years and should expect more change. As CEOs we’ll need to lead our companies through more transformation over the next 10 years than we’ve seen in the past 50,” concluded Mr Seymour.