Deloitte CFO Survey: Swiss chief financial officers undeterred by political risks

Although the level of political uncertainty increased last year with the Brexit referendum and the surprising outcome of the US presidential election, this has had surprisingly little effect on the positive sentiment of Swiss CFOs. The regular survey of over 100 Swiss CFOs confirms the trend of a steady improvement in their economic expectations since their low point in January 2015 continuing in the first three months of 2017. At least 65% of those surveyed regard both economic prospects and the financial prospects of their own companies as positive over the next 12 months. This optimism is driven in part by generally positive economic prospects in the largest economies – the United States, China and the European Union.

Political uncertainty becomes more acute 
This positive sentiment should not disguise, however, the potential of uncertainty factors outside companies’ operating environments and in politics. A total of 59% of the CFOs surveyed deem the current level of uncertainty in the economic and financial environment to be high (previous quarter: 58%). This is the first increase in uncertainty potential – albeit a marginal one – in 24 months.

“At first glance, it may seem surprising that economic prospects continue to improve while at the same time uncertainty factors are increasing and are deemed to be at a high level. Previously it has always been assumed that political instability is toxic to positive economic prospects,” according to Michael Grampp, Chief Economist at Deloitte in Switzerland, commenting on the latest survey. “It shows, however, that most Swiss companies have done their homework over the last two years. They have learnt to respond to the challenging environment with flexibility and agility and to act on the basis of their experience of crisis.”

Export-oriented Swiss economy remains vulnerable
Switzerland as an exporting nation would be particularly heavily impacted, however, by upset in international trading arrangements. The current survey results show that, of Switzerland's six largest trading partners (Germany, the USA, France, Italy, the UK and China), uncertainty potential is regarded as being highest in the US at 60%, followed by France and the UK at just under 50%.

Election outcome in France and the future of the EU
With all eyes on the presidential election in France, Dennis Brandes, Senior Economic Analyst at Deloitte in Switzerland and co-author of the survey, puts the results in context: “As long as politicians do not actively prevent the economy from flourishing, the prospects for Swiss companies are likely to remain good. However, the outcome of the French presidential election is to be awaited with suspense. This is a real choice of future direction. In the best-case scenario, there is hope in France for an 'economic miracle’. In the worst case, Europe faces a huge challenge that could cause it to struggle.”

When asked specifically about the main internal and external risks for their companies, Swiss CFOs still name geopolitical risk, as well as the strength of the Swiss franc, as the two biggest challenges. Pressure on prices and margins moved up from seventh to third place in the first quarter of 2017. These are becoming increasingly troublesome and companies have their work cut out.

Asked what the future of the EU should be against this backdrop, 57% of CFOs in Switzerland see the answer in a multi-speed Europe. That is slightly more than the European average (the same question was asked in 18 other countries). Only a quarter of the respondents regard the answer as being increased economic and political integration, fewer than the European average. Few CFOs give the status quo or a dissolution of the union as the solution, either in Switzerland or on average across Europe.