CFOs around the globe are still more optimistic than pessimistic about 2016, but growth expectations declined sharply in Deloitte's CFO Signals: 2016 1Q report. The manufacturing sector has the lowest expectations in the survey, with revenue growth expected to only be 0.7 percent in the next year.
Declining confidence in the North American economy is driving down expectations for many CFOs. Current performance is still being viewed positively, according to the report, but confidence in the economy's direction is at its lowest point in three years. Forty-one percent of respondents said the U.S. economy is currently good or very good, compared to only 6 percent who described it as bad. But only 36 percent expect conditions to be better in a year, down sharply from 47 percent last quarter.
"Among their most worrisome risks, CFOs voiced growing concern about the toll economic and equity market volatility will take on liquidity and on consumers’ willingness to spend," the report noted.
Sentiment about Europe and China also remained weak.
How are companies responding to this new outlook? By focusing on their existing businesses, the report notes. More than half of respondents (58 percent) said their businesses were biased toward organic growth over the next year, as opposed to 21 percent focusing on inorganic growth. In addition, 65 percent of CFOs said they are more focused on their current geographies than on looking to expand into new areas.
And that strategy is playing out in distribution, as well.
“For a number of players, a ‘focus on the core’ will be the mantra that you hear in 2016,” says Reed Anderson, head of Houlihan Lokey’s industrial distribution practice, in 2016 Distribution Remodel: Refocus on the Core. “Anytime a business faces a challenge, particularly a distributor, there is a tendency to pull back to core markets and practices, as opposed to diversifying, which is easier to do when all the numbers are going up and to the right.”