High energy prices and widening concerns about negative economic fallout from the recent turmoil in credit markets appear to be influencing executive sentiment. Surveyed in mid-December, executives around the world (particularly in the developed economies of Europe and North America) said that they expected higher inflation and deteriorating economic conditions over the next six months.1 Some 41 percent expect inflation in their home countries to rise by one percentage point or more—up from 30 percent three months ago. Only 13 percent think they will have the power to raise prices during the next six months.
Despite such negative indicators, the ongoing competition for talent is clear from other survey findings: twice as many respondents expect their companies to increase as to shrink their workforce, and training and recruitment is the only area in which respondents say that investments are more likely to rise than to remain the same.
A bit more than a third of the respondents to the survey think that economic conditions in their countries will remain the same over the next six months; 37 percent believe that conditions will deteriorate, compared with only 13 percent six months ago (Exhibit 1). Respondents in Europe and North America are particularly pessimistic, while those in developed Asian countries and, especially, in developing economies remain upbeat.
As the cost of energy and food leaps, so do the expectations of the respondents that inflation is going to rise: overall, 62 percent of them believe that it will (Exhibit 2), compared with 39 percent only three months ago.
An overwhelming majority—87 percent—of executives around the world finger rising oil and gas costs as the chief drivers of inflation. Of these, more than half report that their companies are investing in energy-efficient measures to offset rising energy costs (Exhibit 3).
But among all executives who say that inflation is likely to increase for any reason, two-thirds—including C-level executives and board members—report either that their companies don’t have a plan to address the factors driving higher inflation or that they don’t know about any such plan. Nor do most executives think that their companies will be able to raise prices during the next six months (Exhibit 4). However, a plurality of respondents believe that their industries will remain stable over that time, and 30 percent look forward to some improvement.2
Such expectations may help to explain why, despite the broader economic turmoil, companies are set to make recruitment and training a priority: the executives report that their companies are more likely to increase investments for those purposes than investments in research, acquisitions, or equipment (Exhibit 5). The proportion of companies planning to raise their recruitment and training investments soars to 54 percent in the Asia-Pacific and 62 percent in developing markets. Even the figures for hiring are better than might be expected: despite gloomy overall economic expectations in Europe and North America, about 40 percent of the executives in these regions expect their companies to hire more workers. Not surprisingly, executives in Asia-Pacific and in developing markets are the most bullish about hiring (Exhibit 6).
Except in Europe, executives report that most of the new jobs will be created at home rather than offshore—a prevalent pattern during the past year—to take advantage of new market opportunities. Among the 21 percent of executives who expect their companies to cut their workforces, four in ten attribute the decrease to layoffs across the whole company; they do not expect any significant function now performed mostly in the home country to be performed elsewhere in the near future. In fact, more than a third say that activities once performed by terminated employees will be undertaken differently, by fewer people, as a result of technological improvements. 
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