CFO Sentiment: Global outlook driving confidence & optimism

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CFO Sentiment: Global outlook driving confidence & optimism

Confidence amongst Australia’s CFOs is strong – and continues to improve alongside the positive fortunes of the global economy.

13 July 2017: Confidence amongst Australia’s CFOs is strong – and continues to improve alongside the positive fortunes of the global economy – according to the latest edition of Deloitte’s CFO Sentiment report.

Key points from the H1 2017 survey behind the report, conducted in May and June, include:

  • 83% of CFOs are optimistic about the financial prospects of their companies
  • A net 25% are more optimistic than six months ago, up five percentage points
  • Net positive confidence results have now been recorded since H1 2013Uncertainty still prevails – 73% identified ‘above normal’ to ‘very high’ levels of uncertainty, slighly down on the record survey high of 78% in H2 2016
  • 93% believe that tax reform is key to promoting economic growth
  • 94% believe an inclusive approach to growth and its benefits should be a policy priority for government
  • 73% agree that housing affordability is a risk for the performance of the broader Australian economy.

CFO business confidence

CFO business confidence

Confidence, optimism up alongside global economic outlook

Deloitte CFO Program Leader Stephen Gustafson said: “Both confidence and optimism continue to improve just as uncertainty becomes business as usual. And encouragingly, our CFOs remain comfortable in the face of the challenges uncertainty presents.

“Nearly 40% felt more optimistic than six months ago on the back of the improving macroeconomic landscape, with higher rates of economic growth in Asia stimulating demand for our exports, and low interest rates and a lower dollar all important factors supporting optimism levels.

“And with a more positive global outlook, thanks to continued improvement in the US economy, and strong demand out of China, providing favourable tailwinds for Australian business conditions, we hope to see both confidence and optimism remain in net positive territory.

“Conditions are also promoting an appetite for more balance sheet risk. Although this doesn’t mean CFOs aren’t cognisant of potential risks around the corner, but the share of those who think the time is right to take on more risk to drive growth continues to edge up towards 50%.”

Impacts on optimism - domestic factors

Impacts on optimism - domestic factors

Tax reform, rates, Trump and wellness…and looking forward

In addition to the Sentiment survey’s standard questions around confidence and optimism, respondents also considered a range of other business issues – from tax reform and the Trump effect, to scenario and strategic planning and the increasing importance of employee wellness.

“CFOs overwhelmingly believe that tax reform remains an important step in promoting economic growth, and they’re looking to government to ensure that progress already made on tax and other reform areas will continue as growth catalysts,” Gustafson said.

“At the same time, they understand the need to balance reform which promotes growth and improves conditions for business with ensuring the benefits are inclusively spread across society.”

While the RBA has kept the cash rate on hold at 1.5% since August last year, CFOs have shifted their expectation to one where the next move may be down. Six months ago, 42% expected higher rates in 12 months’ time, and 53% expected them to remain around the same. Now, 58% expect little rate change, 40% expect further falls, and only 1% expect a rise.

“Alongside continuing record wage growth lows, this shift may, in part, be based on pricing growth pressures remaining very weak,” Gustafson said.

“Housing affordability is also seen as a key risk, and a housing price crash scenario is identified as a key consideration for CFOs’ forward looking strategic planning.

“We’ve also identified employee engagement and wellness in the face of change as an emerging priority in an environment where attracting and retaining the best talent will be needed to drive future productivity and business performance in the face of disruptive change.

“Accelerated transformation, accessing organic growth and customer engagement were identified as longer term business success drivers.

“And on the Trump front, CFOs have lowered their expectations for what the US President means for the Australian economy and their businesses. Over two thirds now expect his presidency to have no effect on their business in the short run, while nearly 50% expect this to be the case over the longer term as well.”

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