While CFOs globally are often focused on their own countries’ economy, government and regulations, many seem to share common concerns – commodities, currencies and China – according to the most recent Global CFO Signals by Deloitte.
Commodities: The drop in oil prices may have reverberated positively through much of the global economy, but in countries such as Norway and in the energy and resources sector, the price decline has a predictably negative impact.
Currencies: The strength of the U.S. dollar, the devaluation of China’s renminbi, the fall of the Malaysian ringgit and the continued adjustment to the Swiss franc are all weighing on company decisions.
China: The slowdown there is being felt in countries such as Australia, across Southeast Asia and in North America, where fears of a negative spillover effect have impacted growth expectations.
All three factors affect outlooks of many of the 19 countries and regions reporting – often driving optimism down. Additionally, the prospect of higher interest rates and concerns about the pace of recovery also seem to be putting a damper on the rising optimism observed in several countries over the past few quarters.
Still, many CFOs remain committed to growth agendas, while at the same time keeping an eye on costs. In the UK, for example, introducing new products and services or expanding into new markets – expansionary strategies – remains the top priority for CFOs. In Pan Africa, CFOs may be prioritizing improving operations, but roughly three-quarters cite growth as their main reason for investing in Sub-Saharan Africa. And in Southeast Asia, 68 percent of CFOs still expect revenues to rise, as do 79 percent of Japan’s CFOs.
“Going forward, we may be operating in a very different world,” notes Ira Kalish, chief global economist for Deloitte. “The predicted rebound in oil prices has not happened, neither has the predicted ruinous inflation, and even when the US Fed raises interest rates, we will still have exceptionally easy monetary policy.” For many CFOs, he says, that is cause for optimism and investment despite geopolitical rattling – and reason to remain forward looking.
Optimism remains positive in North America (net +14.2). But more than in any other quarter, CFOs voiced strong concerns about how the slowing Chinese growth could hit home. Consequently, their growth expectations, which hit several lows last quarter, did not significantly rebound this quarter and worsened in some cases. Revenue growth expectations, for example, rose to 4.4 percent from last quarter’s survey-low 3.1 percent, but are still among the lowest on record.
Earnings growth expectations held – but at last quarter’s survey-low 6.5 percent. Still, CFOs remain buoyed by the strength of the North American economy and their outlooks on Europe stabilized. Meanwhile, in the two South American countries reporting – Argentina and Chile – CFO outlooks are mixed due to economic and political uncertainties.
After consecutive quarters of robust optimism, confidence has plateaued among Australia’s CFOs – despite record low interest rates and a more favorable exchange rate. This quarter a net +5 of CFOs report that confidence levels have increased compared to net +24 in Q2. China is the main driver of decreased optimism, and the associated concerns are escalating CFOs’ perceptions of uncertainty. In fact, more than half of CFOs report that uncertainty is above normal or high, and only 27 percent believe it is a good time to take risk onto the balance sheet.
Similarly, in Southeast Asia, which has a total of 12 countries reporting, CFOs are becoming less optimistic compared to three months ago (net +3), mainly due to external factors. Three-quarters of CFOs in the region view the level of economic and financial uncertainty facing their companies as high or very high. Still, almost half (49 percent) expect M&A activity to increase, and 46 percent anticipate adding headcount.
As reported in the latest European CFO Survey, CFO sentiment has fallen most in northern European economies including Belgium, Finland, Germany, the Netherlands, Norway and the United Kingdom. The fall in optimism in larger northern European economies is consistent with the weaker export outlook for these countries. Such pessimism, however, contrasts with a brighter outlook reported by CFOs in the south and on the edges of Europe. CFOs in Ireland, Portugal and Spain are now the most optimistic. Capital expenditure intentions are in general higher and employment intentions stronger than among the CFOs based in central and northern European countries.
Given that the Q3 surveys were conducted before the recent Paris attacks, it will be interesting to see how the heightened focus on terrorism affects markets and outlooks as companies close out the year.
