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2021 has arrived, and heralded a marked shift in Australia’s economic performance. Employment is rebounding rapidly and consumer confidence is at a decade high. With the Australian economy looking to pull off something of a V-shaped recovery, it’s no surprise that Australian CFOs have their mojo back.
Deloitte’s latest CFO Sentiment survey shows that Australian CFO optimism has bounced back from a severe COVID-induced shock. More than 70% of CFOs are feeling optimistic or highly optimistic about the financial prospects of their companies.
This renewed optimism is quite a turnaround from mid-2020, when Australia’s path back from COVID-19 (both in terms of public health and the economy) was still largely unknown. CFOs then reported the most pessimistic results recorded since this survey began in 2009 (see Chart below).
At the start of 2021 (and comparing to their fears six months earlier), CFO mood has shifted sharply. The result is now a net optimism rating of 62% for financial prospects relative to six months prior. That is by far the largest change in confidence over a single six-month period. In many cases, this is reflecting not only a recovery from COVID era losses, but optimism that the economy can move ahead strongly in 2021.
Chart: Australian CFO net optimism about business prospects compared to 6-months earlier
The rebound in confidence has occurred despite uncertainty about external financial and economic conditions being extremely high. At the end of 2020, 87% of CFO survey respondents rated uncertainty levels as being higher than normal. This is only slightly lower than the 92% that rated uncertainty as higher than normal in mid-2020.
Fortunately, it appears CFOs are continuing to adapt to high levels of uncertainty. Confidence has not been held back, and some even expressed an increased appetite for taking on risk. Just over half of CFOs (53%) agree that now is a good time to be taking greater risk onto their balance sheets. It seems, uncertainty aside, CFOs view record low borrowing costs, combined with strong economic momentum, as a recipe for their own business expansion.
This is a great sign for Australia’s continued economic growth in 2021, given that business investment was still a drag on the economy in late 2020. The record turnaround in the confidence of Australian CFOs suggests business investment growth may be returning soon.
David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis. David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.
Emma is a Manager with an econometric background, working in Deloitte Access Economics’ Macroeconomic Policy & Forecasting team. Since joining Deloitte Access Economics in early 2016, Emma has applied macroeconomic analysis and econometric techniques to a range of subject matter including social policy, labour markets, the construction sector, international trade and tax policy. She has developed multiple forecast models and currently runs Deloitte’s national macroeconomic forecast modelling. Emma also frequently conducts distributional modelling and inequality analyses.