European CFO optimism split along North/South divide

BUSINESS SENTIMENT among European CFO’s is down marginally over the past six months, according to a survey by Deloitte.

The Big Four firm’s latest European CFO Survey shows a distinct geographic demarcation line in optimism between companies in the south and periphery of the continent, revealing a more upbeat outlook than their counterparts in northern countries.

The biannual survey, which collated the results of surveys run by Deloitte member firms in 15 European countries, analysed the views of 1,298 chief financial officers (CFOs).

A quarter (25%) of CFOs say they are more optimistic about the financial prospects for their company than they were three to six months ago, down from 33% in the first quarter of 2015. Those saying they are less optimistic has risen from 18% in Q1 to 23% in Q3.

Some 58% of Ireland’s CFOs report growing optimism, with a high proportion of CFOs in Spain (54%), Poland (50%) and Portugal (47%) also more optimistic. Optimism is weakest in northern European economies with just 14% of CFOs in both France and Norway saying they are more optimistic, followed by Germany and the UK (both 18%).

Risk appetite meanwhile has declined, with just 33% of CFOs confirming that now is a good time to take risk onto their balance sheets, down from 38% in Q1. Risk appetite is highest in Italy, where 56% of CFOs say now is a favourable time to take risks, followed by Ireland (48%), the UK and Spain (both 47%). Risk appetite is lowest in Norway and Germany, with both countries at 20% saying now is a good time to take risks, followed by the Netherlands (21%) France and Austria (both 22%).

Perceptions of uncertainty have risen among CFOs, 66% say there is a high level of financial and economic uncertainty facing their business, up from 60% in Q1.

Perceptions of uncertainty are highest in Germany (87%), the Netherlands (84%), Switzerland (75%) and the UK (71%). They are much lower in Norway, where 22% of CFOs say there is a high level of uncertainty, Poland (36%) and Ireland (39%).

The survey highlights the areas of greatest concern to Europe’s CFOs, with global economic weakness, geopolitical instability, financial market and currency weakness all rating highly, even in countries where sentiment remains strong.

Over six in ten (64%) of CFOs expect their company’s revenues to rise over the next year, down slightly from 67% in Q1. Optimism about revenues is highest in Italy, where 84% expect revenues to rise, Ireland (82%) and Spain (75%). They are lowest in Austria and France (42%), Netherlands (44%) and Norway (51%). 72% of UK CFOs say revenues will rise in the next twelve months.

Around 41% of CFOs say they expect their company to increase capital expenditure in the next 12 months, with 15% expecting a decrease. 70% of CFOs in Ireland expect capital spending to increase, followed by Italy (58%) and Spain (54%). The smallest increases in capital expenditure are forecast in Norway (29%), France (30%) and Russia (33%). Some 41% of UK CFOs say capital spending will rise in the next twelve months.

On average, 35% of CFOs expect the number of employees in their company to increase over the next 12 months, with 22% expecting a decline. The outlook for hiring is strongest in Ireland, where 55% of CFOs expect to increase job numbers, the UK (47%) and Spain (46%). The smallest increases in hiring are forecast in the Netherlands (12%), Austria (17%) and Russia (24%).

Ian Stewart, chief economist at Deloitte UK, said: “This survey shows concerns about global growth have had a marked effect on sentiment in northern Europe, but we are seeing a rebalancing of prospects within Europe from north to south.

“Since Q1, Europe has experienced another Greek debt crisis and concerns have increased over the strength of the global economic recovery, in particular prospects for emerging markets such as China. This has created a sense of heightened uncertainty among Europe’s CFOs.

“Sentiment has fallen most in northern European economies – including France, Germany, the Netherlands, and the UK – consistent with the weaker export outlook for these countries. Forecasts for global growth in 2015 and 2016 were downgraded between Q1 and Q3, with many emerging markets – important export destinations for countries like Germany and the Netherlands – slowing.”