Deloitte CFO Survey Q2 2015

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Confidence continues to build for Australia's CFOs

Deloitte CFO Survey - Q2 2015

16 July 2015: In spite of financial uncertainty in the Eurozone and China, optimism appears to be gathering momentum for Australia’s Chief Financial Officers (CFOs).

After a big first quarter spike in optimism, the results of Deloitte’s latest CFO Survey report, which covers the second quarter of calendar year 2015, suggests momentum is building for Australian corporates – and certainly for their CFOs.

Key survey findings include:

  • A net 24% of respondent CFOs feel more optimistic now than they did three months ago, despite worrying signs from China and Europe
  • The previously negative influence of Federal Government policy, budget impasses and leadership questions has improved significantly
  • Three quarters of CFOs still thought the rate of fiscal repair proposed by the 2015 budget was too slow
  • Optimism around the Australian dollar has dipped as the exchange rate has steadied.

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Deloitte Assurance & Advisory partner Stephen Gustafson said: “Last quarter, and after a very subdued 2014, we were pleasantly surprised to see the return of genuine CFO optimism.

“That optimism levels have further increased, even though only modestly in Q2, is encouraging given that local and global uncertainty are now more a given rather than exception.

“The last quarter appears not to have been an anomaly and, in spite of almost blanket media coverage of troubles in Europe and China, we appear to be seeing momentum building and an upward optimism trend emerging.”

The survey results show some important shifts in the influence of a number of home-grown factors driving this optimism. For example, the value of the Australian dollar is no longer a standout source of optimism, and Canberra – from policy to budget to leadership – wasn’t as starkly negative as it has been in the past.

Low interest rates continue to support optimism as gearing intentions remain solid given credit is still perceived to be both cheap and available.

How has your level of optimism been affected by the following local factors
How has your level of optimism been affected by the following local factors?

Canberra and fiscal repair

“In Q1 2015, policy uncertainty and leadership instability were identified as key concerns, and their impact on confidence was severe. But three months on, the reality when it comes to Canberra is quite different, particularly with the release of a comparatively benign budget,” Gustafson said.

“The proportion of CFOs whose optimism was positively affected on this front nearly tripled in Q2, shifting the net effect from starkly negative, where it had been for a good 12 months, to neutral.

“They still have mixed feelings about this year’s budget. Nearly 60% believe it will have a positive impact on the economy, but 74% still say the rate of fiscal repair is too slow.

“The budget’s focus on small to medium enterprises, while generally well-received in the electorate, could also explain the more tepid expectations among CFOs of the budget’s impact on company growth at the top end of town.”

When asked how the small business package would affect business investment, and therefore the economy as a whole, no respondents felt the effect would be negative, while 56 % said the positive impact on business investment would be very small.

The 2015-16 budget placed less emphasis on fiscal repair than its predecessor and the implied speed of repair has slowed. After the 2014-15 budget, 54% of CFOs felt the rate of fiscal repair was appropriate, and 18% felt it should be increased. One year on, and with a slower rate of repair, only 22% felt the rate was appropriate, while 74% said it should be increased.

The dollar and interest rates

“The positive impact of a falling Australian dollar on optimism has somewhat abated. Last quarter, 30% of CFOs expected the dollar to be worth less than U.S.$0.70 by the end of the year, and this, in turn, fuelled optimism,” Gustafson said.

“CFOs expecting the dollar to fall below U.S.$0.70 declined significantly in Q2 2015 and the trend of CFOs predicting lower and lower exchange rates has stabilised. 80% of respondents believed the exchange rate will remain between U.S.$0.70 and U.S.$0.80, while only 11% now expect it to fall below U.S.$0.70 in the coming year.

“Expectations of the cash rate have also steadied, with CFOs fairly well spread in their predictions, although more than a third expect rates to stay at 2% for at least the next 12 months.”

Optimism still flushed with uncertainty

“While CFOs remain optimistic, uncertainty levels were still relatively high, although at their lowest since Q1 2014, and significantly improved on the previous quarter,” Gustafson said.

“This is consistent with Canberra, in particular, being a less significant source of concern and uncertainty, but still reflects concerns around China and Australia’s ongoing search for new growth drivers.

“The good news is that perceived uncertainty isn’t overly dampening business spirits and that the momentum shift that emerged in Q1, and which appears to have been confirmed in Q2, is influencing more positive levels of business confidence.”

About the survey

The Deloitte CFO Survey targets the CFOs of major Australian listed companies. It has been conducted on a quarterly basis since the third quarter of 2009. This survey covers the second quarter of 2015 and took place between 11 and 26 June 2015. 45 CFOs participated, representing businesses with a combined market value of approximately $162 billion or 9.33% of the Australian quoted equity market.

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