Most of senior executives expect only modest business growth over the next 12 months due to sluggish growth expectations for developed economies and increasing cost pressures from rising labor costs and input prices, the Corporate Executive Board's latest Business Barometer showed.

Despite these challenges, the survey showed that executives are feeling optimistic in a number of key areas, most notably, increasing growth expectations for emerging markets.

A startling 71 percent of executives expect accelerating growth in emerging economies compared with 59 percent in the third quarter, while 32 percent of executives see strong growth prospects in the U.S. and Europe.

Optimism among senior executives about the future of the economy increased slightly in the last three months, as companies expect continued growth but face challenges adjusting to the new post-recession marketplace, the survey showed.

The index of expected business conditions measured the economic assumptions of more than 400 executives across six functional business roles. CEB's Business Barometer rose to 48.9 in the fourth quarter, after a drop to 47.8 in the third quarter.

68 percent of executives expect greater cost pressures in the fourth quarter, up from 63 percent in the third quarter, the survey showed.

More executives expect a rise in inflation rather than a decrease. Forty-two percent of executives also expect the US dollar to decline in value in the year ahead.

While downward pressure on the dollar will present a tailwind for U.S. exporters, currency volatility remains an area for vigilance, according to Oleg Polishchuk, senior director, Global Research for the Finance and Strategy Practice at CEB.

Seventy-three percent of human resources executives believe unemployment will remain high or grow higher, according to the survey.

Finance executives continue to expect increases in the number of M&A deals this year up to 53 percent compared to 51 percent in the third quarter although are not yet as optimistic as they were in the second quarter, when they expected a 63 percent rise in new deals.

Leading companies are taking a highly selective approach to resource allocation, working back from key growth and efficiency bets, said Michael Griffin, executive director, Global Research for the Finance and Strategy Practice at CEB.

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