CFOs optimistic despite political uncertainty, suggests Deloitte survey

CFOs are optimistic about their financial prospects despite geopolitical uncertainty, suggests the findings of Deloitte’s Q4 2016 Global CFO Signals survey released this month.

Although the Brexit vote and the US presidential election have caused uncertainty, the results from surveys in nine geographic regions point to a more positive outlook about financial prospects, key metrics and economic outlooks and CFOs in the UK are entering 2017 in better spirits than at any time in the last 18 months.

In North America, where the survey opened the day after the presidential election, optimism rose from +19.7 in Q3 2016 to +23.4 in Q4 2016, despite uncertainty about new government policy. Australia was another country that came back with surprising results, with optimism high for four consecutive years, though uncertainty is at record levels.

Ian Stewart, chief economist at Deloitte UK says the lesson here is that: “political shocks and upsets do not necessarily have huge economic effects.”

It also suggests that this negative noise is overshadowing business successes, like in Europe, where Stewart points to an evolving recovery, “perceptions are being skewed by politics.”

That’s not to say political upheaval is not impacting attitudes. In the UK, CFOs expect Brexit to negatively impact capital spending (35%), hiring (39%), and discretionary spending (51%) over the next three years, while in the US, respondents frequently mentioned the ‘uncertain impact of the new administration’ as one of their most worrisome risks.

Protectionism, especially in the US is also a big concern for trading partners, with 27% of Switzerland’s CFOs citing commercial reforms and protectionism in other countries as having negative impacts on the financial successes of their own businesses.

Despite the doom and gloom, some countries expect to march on and deliver results, with 71% of CFOs in Central Europe expecting company revenues to grow in the coming year, while 75% expect operating margins to improve or stay the same. Across the world, 69% of CFOs in Japan forecast increased earnings, while closer to home, revenues are expected to increase in Belgium (84%), the Netherlands (70%) and Switzerland (62%).

The UK has come out as more resilient than expected in the face of its imminent departure from the European Union. After battening down the hatches by pulling back on investment and spending, market forecasts for UK GDP growth in 2017 rose to 1.3% by December after plunging to just 0.6% in the wake of the vote.

But although CFOs are in better spirits than at any time in the last 18 months, Brexit still looms large on the horizon, with feelings of uncertainty running high and a depressed corporate risk appetite. To staunch concerns, cost reduction and building up cash have become the top priorities for UK CFOs, with two thirds expecting business conditions to worsen in the long-term due to Brexit.

Across the water, CFOs in the US express considerable optimism in the face of uncertainty over the new administration, with optimism about their companies’ prospects at its highest for two years.

While it is widely anticipated that significant changes to tax rates, health care and trade and infrastructure will come into effect, there are concerns over trade-offs, for example tax uncertainty limiting near-term business investments and the possibility of a rising national debt.

As political uncertainty gains top place as a worry for US CFOs, optimism looks set to rise in despite it, with 43% describing North American conditions as good and 58% expecting better conditions in a year.

Such a generally positive outlook is encouraging as global upheaval and uncertainty usher in the new year and Patricia Buckley, managing director of Economic Policy and Analysis at Deloitte said: “That is why it will be interesting to see the change in sentiment over time.”

The CFO Global Signs Q4 2016 survey covers the results of surveys from Deloitte member firms in Australia, Belgium, Central Europe, Japan, the Netherlands, North America, Russia, Switzerland and the United Kingdom