CFOs hold firm as risks grow

As 2022 comes to an end, uncertain economic conditions continue to cast a shadow over Australia’s domestic outlook. Australia’s economic challenges have morphed from pandemic lockdowns and supply chain challenges, to something more akin to a normal business cycle where authorities are trying to engineer a soft landing. 

In this current economic environment, the latest edition of Deloitte’s CFO Sentiment report shows  that Australian CFOs are in two minds. Net optimism about the Australian economy amongst CFOs is at a staggering -22% whereas net optimism about business prospects for their company is at +66%.  This disparity reflects that while there is a growing concern around the Australian and global economy, CFOs have an embedded confidence when it comes to their own business.   

Chart 1: CFO Optimism 

Source: Deloitte CFO Sentiment Survey 

Consistent with the rising pessimism about Australia’s economic outlook, surveyed levels of uncertainty have also risen. As a result, CFO’s risk appetite has taken a significant dip with only 20% saying now is a good time to take more risk onto their balance sheets –the second lowest share of CFOs surveyed on record.  

Securing and retaining key talent remains the number one concern for businesses for the fourth survey in a row, while inflation and the threat of a global economic recession round out the top three risks. 

Some 65% of CFOs believe inflation will peak at 7-8%, but interestingly, there’s more variance in when they think inflation will peak than where (whether it’s late 2022 or through 2023). In this current inflationary environment, CFOs are facing added pressure to develop and adapt organisational strategies to cope with increased prices. When asked about these strategies, ‘investing in capabilities or workforce productivity’ came out on top at 89% of all CFOs. This strategy not only responds to rising costs but also addresses the difficulty of attracting and retaining talent, with the aim of lifting business productivity as well.  

Some 65% of CFOs believe inflation will peak at 7-8%, but interestingly, there’s more variance in when they think inflation will peak than where (whether it’s late 2022 or through 2023). In this current inflationary environment, CFOs are facing added pressure to develop and adapt organisational strategies to cope with increased prices. When asked about these strategies, ‘investing in capabilities or workforce productivity’ came out on top at 89% of all CFOs. This strategy not only responds to rising costs but also addresses the difficulty of attracting and retaining talent, with the aim of lifting business productivity as well.  

In this edition of the survey, a new risk - data management, cybersecurity and analytics capabilities – has entered the arena, rising from 13th risk of most concern in H1 2022 to top four risk of most concern. The rise of cyber risks reflects the impact and frequency of high publicity cybersecurity incidents in recent months. The survey revealed that in the last 12 months, one in three CFOs (32%) have experienced at least one cybersecurity incident, with 86% of those same CFOs reporting the frequency of cyber incidents had increased. However, less than half of surveyed CFOs (45%) agree they’re prepared to handle a significant cyber incident – leaving a large share of businesses vulnerable, or at the very least worried, about the risk of a cyber incident.  

Chart 2: Preparedness to manage a significant cyber incident

I am confident that my organisation is prepared to manage a significant cyber incident (by business size)

Source: Deloitte CFO Sentiment Survey 

Finally, CFOs are reporting a more diverse spread of ESG drivers than a year ago. While investors and shareholders remain the primary influence, boards are increasingly driving action on ESG from within, as they focus on their reputation and ability to attract and retain talent.