World markets boom even as the globe gets more chaotic and dangerous

  • CEOs across the globe's major economic regions are confident about the next 12 months.
  • Leaders in world markets are bullish even though international security is declining.
  • Risks in Asia include North Korea nuclear arms and China military aggression, while in Europe, Catalonia independence and an Italian banking crisis are the latest flashpoints.

Despite threats posed by North Korea's nuclear missile program, continuing political crisis in the European Union and delays in the execution of pro-business policies in the United States, business leaders in the United States, Europe and Asia continue to express optimism about economic prospects for the next 12 months.

That's based on the latest YPO Global Pulse survey, a quarterly reading of CEO sentiment across the globe, which increased slightly in the third quarter. Regionally, confidence from business leaders in the United States and Asia were both up, while the index for the EU dipped slightly.

A man walks past a stock quotation board flashing key indexes of world stock exchanges in front of a securities company in Tokyo on May 8, 2017.
Toru Yamanaka | AFP | Getty Images
A man walks past a stock quotation board flashing key indexes of world stock exchanges in front of a securities company in Tokyo on May 8, 2017.

What is striking about these high levels of business and consumer confidence is that they are occurring against a backdrop of an increasingly chaotic and more dangerous international environment. All three of the world's major economic regions have seen significant threats to their security sharpen over the course of 2017. Yet CEOs are still optimistic.

In Asia the prospect of a nuclear-armed North Korea with the missile technology to deliver a warhead across intermediate and, eventually, intercontinental ranges have produced significant apprehension among U.S. allies in the region. Add to that Beijing's single-minded determination to militarize the South China Sea and push its defensive perimeter to the approaches of both the Pacific and Indian oceans and you have all the elements for a regional arms race and potentially even the spread of nuclear weapons.

"Accelerating economic growth worldwide, improving consumer confidence, rising wages and continued strong investment, coupled with a cautious interest-rate policy on the part of the Federal Reserve Bank and other central banks, is laying the foundation for the fastest rate of sustained global growth in more than a decade."

For CEOs, though, the risks posed by the threat of war in the Korean Peninsula is trumped by their belief in improving economic prospects. China's aggressive posture in the South China Sea is precipitating a realignment in the region's international politics with an emerging military cooperation, if not de facto alliance, between traditional allies, like the United States, Japan, South Korea, Australia and historically non-aligned India and formerly hostile Vietnam. There is even speculation that Hanoi may open the former U.S. military facilities in Da Nang to the U.S. Navy.

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This paradox is equally true of business sentiments in Europe. On the heels of Brexit, Catalonia's fight for independence, two of Italy's largest economic regions seeking greater autonomy and continued turmoil within the EU, European CEOs report similar levels of economic confidence.

For European business leaders the prevailing view is that the EU's problems, while serious, will be resolved through a combination of administrative fixes, political compromises and by doing what politicians are prone to do: Push the problem far enough into the future that it will become someone else's issue to resolve. The same approach that was taken to managing the Greek debt crisis and the current Italian banking crisis.

Fastest rate of sustained global growth in more than a decade

In the United States the view both domestically and internationally is also troublesome. Domestically, the Trump administration has yet to deliver on its reforms of the Affordable Care Act (ACA) or a comprehensive infrastructure development program. Last week Congress and the White House unveiled their proposed revision of the tax code, the first comprehensive rewrite of the tax laws in three decades. While far-reaching in its scope, it is too early to assess its legislative prospects.

In the meantime, the United States is facing several volatile situations on the international front — threats from North Korea, China's East Asian ambitions, the dismal state of U.S.-Russia relations and ongoing cybersecurity concerns. Despite all this, U.S. CEOs are the most confident in the world and have been in three of the past four quarters, according to the YPO survey.

A more volatile international environment usually means an increase in defense spending. This was, for example, the case with both the Reagan and George W. Bush administrations. Since those increases are invariably financed with more debt, their effect on the U.S. economy is stimulative. If higher defense spending promoted higher taxes, then the view from American business leaders would be less sanguine.

Combined with the better-than-expected U.S. growth rate of 3 percent in the third quarter, rising employment, wage growth trending up and commodity inflation, all signs point to a continuation of robust growth in the U.S. economy. Positive sentiment in the world's other major economic regions continues to track in tandem with American optimism and underscores the synchronization of worldwide growth prospects.

Accelerating economic growth worldwide, improving consumer confidence, rising wages and continued strong investment, coupled with a cautious interest-rate policy on the part of the Federal Reserve Bank and other central banks, is laying the foundation for the fastest rate of sustained global growth in more than a decade. Another sustained upswing in equity prices may well push the Dow Jones Industrial Average solidly above 25,000.

By Joseph Micallef, entrepreneur, international security and military expert and a member of the CNBC-YPO Chief Executive Network

About YPO

CNBC and YPO have formed an exclusive editorial partnership consisting of regional "Chief Executive Networks" in the Americas, EMEA and Asia-Pacific. These Chief Executive Networks are made up of a sample of YPO's global network of 24,000 top executives from 120 countries who are on the front lines of the economy and run companies that collectively generate $6 trillion in annual revenue.

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