CEOs say political uncertainty poses the biggest risk to company growth

The central theses

• According to KPMG’s CEO Outlook 2023 survey, CEOs ranked geopolitics and political uncertainty as the biggest risk to business growth over the next three years.
• Just over half of investors surveyed by Investopedia said they are worried that politics and the 2024 U.S. presidential election could impact their investments over the next 12 months.
• Despite concerns about political instability, nearly three-quarters (73%) of CEOs are confident about global economic growth over the next three years, KPMG reported.

After a political standoff threatened to topple the U.S. government last week, politics is high on the agenda for many business leaders. CEOs recently surveyed by KPMG identified geopolitics and political uncertainty as the biggest risk to company growth over the next three years.

CEOs’ concerns about political instability arose when the U.S. government narrowly averted a shutdown and the U.S. House of Representatives voted to remove Speaker Kevin McCarthy. This highlights deep divisions in the federal government that could negatively impact the country’s budget, credit rating and financial markets.

Geopolitics and political uncertainty have not always raised concerns among CEOs. In fact, according to KPMG, they weren’t even among CEOs’ top five concerns in 2022, suggesting that executives’ assessment of political risk has changed significantly.

More than three-quarters (77%) of CEOs also said they believe rising interest rates and tight monetary policy could contribute to the risk of a global recession, as the Federal Reserve has raised interest rates to combat inflation. Fed officials suggested interest rates could stay higher for longer if inflation persists.

Recent political standoffs have also caused more investors to worry about politics. Just over half of investors surveyed by Investopedia (52%) said they are concerned that politics and the 2024 presidential election could hurt the performance of their portfolio over the next 12 months. Concerns about the election were only surpassed by inflation concerns: 59% of respondents said they feared it would impact their investments.

However, the S&P 500 delivers positive returns in most presidential election years, Morgan Stanley found. Analysts noted that when a Democrat was in office and a new Democrat was elected, the index averaged growth of 11%, while when a Republican replaced a Democrat, it averaged a return of 12.9%.

Despite concerns about political uncertainty, CEOs were slightly more optimistic about the outlook for the global economy over the next three years than in previous surveys. In September, 73% of CEOs said they were confident in the global economy’s growth prospects over the next three years, compared to 71% in August 2022 and just 60% in August 2021.