CFO Sentiment: a glass half empty as global, local factors hit confidence
7 February 2019: Australian CFOs are feeling less optimistic about the future on the back of weaker domestic and global economic outlooks and rising uncertainty.
According to the latest edition of Deloitte’s biannual CFO Sentiment survey, and covering the second half of 2018:
- Net optimism amongst CFOs is down to 66%, from 73% in the first half of the year
- 66% are uncertain about the economic and financial environment facing their company
- 76% think house prices will be lower in 12 months
- 50% are considering interest rate normalisation in their strategic planning
- 53% feel the share market will recover somewhat in 2019.
Deloitte CFO Program leader, Steve Gustafson, said: “Australian CFO sentiment has shifted. Their outlook has become more subdued, and what was a glass half full on outlook and risk appetite, has become more of a glass half empty.”
Global and local – optimism down, uncertainty up
“Only six months ago, strong global economic conditions were flowing through to the Australian economy, and this was driving CFO optimism,” Gustafson said.
“There was, however, a perception that conditions could deteriorate with little notice, and when we last surveyed in mid-2018, net uncertainty had increased since earlier in the year.
“Despite this, and when corporate tax cuts were still on the table, close to two thirds of CFOs still agreed it was a good time to take greater risk on their balance sheets.
“That sudden deterioration has come to pass, with both global and domestic conditions now facing challenges in the year ahead. CFOs feel less certain about the future, and this is hurting optimism, and risk appetite, heading into 2019.
“Rising trade tensions between China and the US, and the possibility of a global economic slowdown, have emerged as major drivers of weaker confidence as well as feelings of uncertainty, which are up considerably from earlier in 2018.
“Domestic sentiment matches global economic sentiment, with the number of CFOs feeling negatively about the Australian economy outnumbering those with a more positive perspective.
“The decline in the local share market, the worst in seven years, has been a key driver, negatively impacting the confidence of 47% of CFOs, the weakest result since H2 2015.
“A view that interest rates will remain low has provided something of a cushion, but the rapidly approaching federal election is also creating increased political uncertainty.”
Time for stimulus?
With more risks in the outlook, and lower confidence in future operating conditions, a majority of CFOs believe government stimulus would benefit the economy.
“This is an interesting development,” Gustafson said. “With the improved federal budget position, 55% of CFOs feel that additional revenue should be spent on government investment in the likes of infrastructure or education. This is a significant shift in sentiment compared to the first half of 2018, when nearly 60% felt revenue gains should be used to reduce the deficit at a faster rate.”
Gustafson said that while Australia’s economic outlook still remains broadly positive, global and domestic risks remain that could threaten growth and business confidence.
“House price declines, and their potential impact on consumer spending, remain front of mind for many, including our CFOs. More than 75% think prices have further to fall over the next 12 months,” he said.
“Given the large decline in the share market through 2018, just over half feel the share market will recover, expectations for interest rates are predominantly that they will be either the same or higher, and our exchange rate will remain largely unchanged over the next year.”