Companies warn of further economic slowdowns

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This was published 8 years ago

Companies warn of further economic slowdowns

By Ruth Liew
Updated

Financial services companies are bracing for at least one more major economic shock in the next decade, and cite delivering sustainable returns to shareholders as one of their biggest challenges by 2025.

New research from BNP Paribas conducted by the Financial Review Business Intelligence unit found 55 per cent of senior finance executives believed economic shocks in domestic or global markets will be the biggest issue in the finance sector in 10 years.

Executives share the Reserve Bank of Australia's views about the transitioning economy, which is moving from a mining boom to one with a more diversified economic base.

Executives share the Reserve Bank of Australia's views about the transitioning economy, which is moving from a mining boom to one with a more diversified economic base.Credit: Reuters

The survey, based on 115 respondents out of which 55 operate in the finance sector, shows 49 per cent believed delivering sustainable returns to shareholders and business owners would also be a big roadblock for their companies.

"They [finance executives] have had a recent memory of some fairly extreme conditions," John Keith, managing director and head of financial institutions coverage at BNP Paribas, said about the 2007 global financial crisis.

Companies are also worried about keeping pace with technology developments.

Companies are also worried about keeping pace with technology developments. Credit: Bulent Ince

"You now have a turnaround in the lines of trade, the iron price, which has come down from very stellar heights to more-modest levels, and coal prices [falling]," he said.

Executives are sharing the Reserve Bank of Australia's views about the transitioning economy, which is moving from a mining boom to one with a more diversified economic base, Mr Keith said. "And that's why you've got this degree of pessimism, about bracing for more shocks."

The research found that companies expect the United States to lead growth among the developed countries for many years. The eurozone and Japan are forecast to remain comparatively stagnant for several more years, then probably grow, albeit it at a slow rate.

Despite bankers' worries about the economy in 2025, the Australian corporate sector is generally more optimistic about the country's prospects for growth.

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BNP Paribas found while 62 per cent of corporate leaders are worried about economic growth today, about 52 per cent are nervous about environmental, social and corporate governance (ESG) issues, including climate change, in 2025.

This is closely followed by companies worrying about keeping pace with technology developments.

"ESG issues are expected to be at the forefront of corporate thinking by 2025 as well as for financial institutions. This suggests that capital markets may become increasingly influential in ESG matters and that new financial instruments, such as green bonds, will increase in popularity," Mr Keith said.

About 49 per cent of companies believe technical developments are expected to be a key challenge in the next decade. IT disruption is widely expected, and management is expected to play an integral role in planning for this in 2025.

Companies are keeping a close eye on offering clients improved technology, rather than focusing on how the latest systems can be used to cut costs and boost efficiencies.

About 65 per cent believed customer analytics will be a significant opportunity for financial services groups in 2025, compared with 8 per cent today. Sixty four per cent believe technology will bring new products to market.

"There is an important rebalancing evident," Mr Keith added. "This shift represents a focus on revenue and reward, away from seeing technology as a first and foremost means to reduce expenses."

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