Nearly all the energy CEOs in a recent survey said a recession is likely in the next 12 months and are taking steps to address recessionary impacts. While half of them believe the recession will be mild and short, 75% of those CEOs also think it will upend growth over the next 3 years, according to a recent KMPG report.
“Many economies have seen the fastest inflation and interest rate hikes in decades. This may last longer than what was expected and puts considerable pressure on companies’ labor, operation and financing costs,” explained Alex Choi, ASPAC regional ENR leader for KPMG China.
He added, “Other evolving agenda items like geopolitics, ESG and carbon tax have made restructuring of the supply chain complicated and challenging.”
The report also finds that energy CEOs are exploring how they can mitigate recessionary impacts to plan for this economic disruption. To hedge against supply chain risks, 41% of respondents have taken steps to diversify their supply chains, while 36% said they plan to do so over the next 6 months. Nearly half of energy CEOs indicated they’re considering reducing employee headcount over the next 6 months.
“The combination of uncertainty, delays and price fluctuations is forcing some executives to significantly shift their priorities and pivot their business models in an attempt to maintain their growth and confidence as they enter an incredibly challenging period,” said Regina Mayor, global Head of clients and markets at KPMG International.
Although energy CEOs are readying for a recession, many also report feeling optimistic about growth prospects over the next 3 years — for the economy more broadly, the energy industry and their companies.
Seventy-one percent indicated they feel either confident or very confident about the global economy’s growth potential, and 85 percent said they feel confident or very confident about the energy industry and their specific organization.
According to KPMG, in the short- and long-term, energy CEOs and organisations should prepare responses to potential economic scenarios related to the energy transition, regulatory and other emerging risks. Focusing on operational efficiencies, retaining employees, and M&A opportunities will also be crucial to keep their organisations on the right track.