Next Decade Threatened By Weak Economic Growth, But Foundations Can Remain Strong
Strap in for an economic slog through the next decade. In Global Economic Outlook 2020: Stagnating Growth amid an Uncertain Outlook, The Conference Board’s Chief Economist, Bart van Ark, announces that “we’ve arrived in a world of stagnating growth.” With corporate giving being closely tied to business performance and contributions historically dropping after difficult economic periods, a slowing economy does not bode well for the flow of corporate donations to the nonprofit community. Moreover, a potential hit to consumer confidence could magnify a funding shortfall. Fortunately, corporate foundations are built to navigate these conditions. It might be time to get ready.
Van Ark cites recession fears and a hit to the global economy in 2019—which slowed growth to 2.3 percent—as reasons why “global growth has now dropped below its long-term trend of around 2.7 percent.” While he argues that the risk of a downturn will be contained, van Ark says: “The slowdown is disconcerting because over the past two decades, a dip in global growth below 2 percent has often meant recessions in the form GDP contractions across a broad range of regional economies.”
The forecast for the US is worse. The Conference Board predicts a further slowing of GDP growth from 2.5 percent in 2019 to 2.2 percent in 2020, falling further to an “underlying trend growth of 2 percent over the medium term (2020-2024).”
Corporate giving follows business performance
As a sustained period of stagnating economic growth unfurls, history tells us that diminished corporate giving will likely follow. For example, the 2008 recession saw company donations drop significantly in 2009. This negative outlook presents an important imperative for corporate foundations. Among the more important reasons that companies establish foundations is the ability maintain a consistent level of giving during periods of lower profitability.
Over the past decade, however, there has been a shift in corporate philanthropy towards a corporate cash/non-cash model in place of a foundation cash model. This trend magnifies the risks that the nonprofit community faces if the economy stagnates in the way that The Conference Board is predicting. Corporate cash and non-cash giving is determined year-over-year—the failsafe that foundations provide is not available.
Nonetheless, more than 75 percent of companies maintain a foundation, so the facility is there in most cases to keep giving constant.
Consumer confidence not guaranteed
It’s not only a potential decrease in corporate cash and non-cash giving that should put corporate foundations on high alert. In 2018, individuals were responsible for $292.02 billion in charitable giving, compared with $75.86 billion by foundations (non-corporate) and $20.05 billion by companies (including corporate foundations). Individuals’ contribution to the nonprofit community is huge and often influenced by consumer confidence.
While consumer spending buoyed the global economy in 2018-2019, van Ark pointed out in October that consumers could react negatively to “a drumbeat of news about potential volatilities, or whether a financial market shock , the escalation of a geopolitical event, or a tariff war that raises prices of consumer goods.” He adds: “[C]oncerns about overall business conditions and a labor-market slowdown may lead to a drop in confidence in the future.” A potential shortfall in personal giving due to such a response from consumers might also need plugging by the corporate community.
With potential losses in individual and corporate giving, foundations could have a large funding gap to fill over the coming decade. There is no better time than now—the end of a largely positive decade economically—to bolster foundation reserves to ensure strategic nonprofit partners continue to be well resourced during potentially difficult years ahead.
The good news from The Conference Board is that living standards can be maintained even within stagnating economies. Van Ark says the GDP growth rate will stay strong enough to “sustain average income growth at more than 2 percent per year because projections of global population growth have also dropped substantially.” There are also signs of life in emerging economies. India has become the fastest-growing large economy and has the opportunity to generate significant growth from faster productivity growth, but investment in emerging markets remains key. With these two points in mind, global companies should consider using available philanthropic dollars to invest in the social fabric of markets that are in a position to capitalize most on the prevailing economic conditions.