Central Europe CFO Survey 2019
Outlook optimistic – but is confidence past its peak?
Chief Financial Officers from nearly 700 major Central European organisations representing a wide range of industries and sectors are positive about the economic outlook and expectations for their own businesses. But some of the gloss has come off recent increases in optimism, and the very high levels recorded in 2018 have not been sustained.
This is the key finding of the Deloitte Central Europe CFO survey report, which has now tracked shifting CFO opinion across the region for a full 10 years. The 2019 edition has just been published, and slight negative changes in several key areas suggest that concerns are slowly growing about the external financial and economic uncertainties that businesses face.
The most significant outcomes are:
- An anticipated average growth in GDP of 2.3%, 0.1% lower than we recorded in 2018
- A fall in the proportion of CFOs predicting a decline in unemployment during the year ahead, down from 48% last year to 38% in 2019
- A rise in the share of respondents who believe there is a high level of uncertainty in the business environment, up from 31% in 2018 to 35% now
Indications of this tendency towards somewhat reduced optimism are apparent in several areas:
Company financial outlook remains positive but down from previous surveys
Most often, CFOs see their companies’ financial prospects either as better or unchanged (both 39%) when compared to six months ago. However, there has been a small but regular tendency towards decreasing optimism since 2016. Most CFOs believe that revenues will be higher in 2019 (66%), but the share that holds this positive view has decreased since last year by 7p.p.
More CFOs are risk-averse than in 2018
Like last year, most participating CFOs think that this is not a good time to take on greater risk when making financial decisions. The overall proportion of CFOs thinking this has risen to nearly three-quarters (73%), although there is a spread of opinions depending on country. For example, while CFOs in Hungary and Bulgaria are optimistic about the risk environment, those from Slovakia, Lithuania, Poland and Romania are all notably more pessimistic than they were last year.
Operating margins are expected to stay the same or grow
Most CFOs expect operating margins to increase or to stay the same (both 38%), but there was a slight decrease in optimistic expectations (from 42% in 2018 to 38% in 2019).
Rising costs identified as the biggest risk factor
When identifying the major risk factors facing their business, more than half (57%) of CFOs regard increasing costs as a major threat to their business, highlighting costs relating to the workforce (selected by 90%), transportation (82%) and production (83%) as key areas of concern. The greatest rise in answers predicting an increase related to the costs of debt (up by 9 p.p., from 55% in 2018 to 64% in 2019).
Employment levels are expected to stay the same or to increase
Most CFOs expect the number of employees in their companies to remain unchanged (45%) or to increase (37%). However, as with the falls they are expecting in other company growth indicators, there is a tendency for CFOs to be less willing to hire new employees. And when it comes to finding the right people, technical knowledge and work experience are the two hardest skills for companies to find. Improved remuneration and staff training are the main actions being taken to address any skills shortages.
Deployment of Artificial Intelligence
In a special focus for the 2019 CFO report, we looked at attitudes to and experience of working with artificial intelligence (AI) solutions and other cognitive technologies among the region’s CFOs. Despite the high profile that AI has achieved in recent, the results suggest that companies across Central Europe are not grasping the potential benefits of AL with great speed. Key findings include:
- 64% of CFOs admit that the finance function in their organisation is only a little or not at all prepared for implementing AI solutions
- 77% of the region’s companies do not use any form of cognitive tools
- There is no broad agreement among CFOs about whether it is relevant for the finance function to adopt AI solutions
- Performing routine tasks is the most popular application of AI, and very few CFOs currently use it to support managerial processes
- Accounting is a key area for AI solutions.
When it comes to AI and other cognitive tools replacing humans, the long-term outlook for employment opportunities is not positive. While CFOs believe there will be little impact over the next three years, and that in three years AI/cognitive technologies and workers are likely to augment each other’s abilities, in 10 years’ significant numbers of jobs in the finance function will be replaced by technology.