CFOs in Central Europe are optimistic

Finance directors' views have improved

For the sixteenth time, Deloitte has conducted its CFO Survey summarizing the opinions of Central European finance directors, which was completed between October and December 2023.  As usual, in addition to assessing the economic and business environment, the survey also covered their outlook for the future. More than 500 CFOs in the region were asked to give their views on the above topics, with CFOs in Hungary accounting for 1.9% of the total number of respondents. Most of the CEOs concerned work in the manufacturing sector, but consumer sectors, financial services and telecoms and media were also well represented.

 

The results reflect a significant improvement, with the CFO Confidence Index
rising from minus 15 points in 2023 to plus 17 points. Within this, all three sub-indices showed an increase, with the smallest increase being in the assessment of the current economic situation, but this has climbed to plus 3 points from minus 6 points last year. There was a huge jump in the business environment assessment, from minus 46 to plus 31 points, while the corporate outlook rose from plus 7 to plus 18 points.

- said Bálint Láng, CFO Programme Manager at
Deloitte Hungary.
 

On average, financial leaders expect GDP growth in the region to reach 1.1 percent this year, up from 0.3 percent a year ago. In addition, the outlook for the labour market has also improved, with only 38 percent of respondents expecting unemployment to rise, down from 68 percent a year ago. Leaders have also become more optimistic about inflation, although 57 percent of respondents still expect the rate of price increases to rise, which could be a warning sign.

 

The largest share of Hungarian finance leaders, 36 percent, expect GDP growth to be moderate, between 1.6 and 2.5 percent this year, while 27 percent expect 0.5 percent and another 27 percent expect 0.5 to 1 percent.  This suggests that business leaders are perhaps slightly more pessimistic than economic analysts, who see growth of up to 3-4 percent in 2024.   

 

On the labour market, no major improvement is expected if corporate finance professionals are to be believed, with 46 per cent expecting the unemployment rate to remain unchanged over the next year. In addition, 38 percent expect the unemployment rate to rise, which Deloitte reports is a sign of confidence in the economy's recovery, but also of caution. In Hungary, labour market expectations are balanced, with 37 percent of respondents expecting an increase in unemployment, 36 percent expecting stagnation and 27 percent expecting a decrease. This could be a sign of diverging business prospects, but it could also be a sign of uncertainty. 

 

Inflation has fallen significantly in all countries in the region in 2023, and business leaders do not expect a similar tendency this year. Interestingly, however, Hungary is the most optimistic, with almost four in five respondents expecting a further moderation in the rate of inflation and only 27% expecting inflation to rise.  Of course, this is partly explained by the fact that Hungarian inflation was by far the highest in 2023, meaning that on an annual average “there is room for further decline”.  

Hungarian managers more optimistic but still risk-averse

The proportion of those finance directors who see significant uncertainty about the business outlook has fallen, but they are still in the majority. Almost all respondents (94%) still expect labour costs to rise in 2024.   

Interestingly, almost a third of exporting company executives consider supply chains to be critical, while only 6% hold a similar view on climate change. The cautious attitude of business leaders is also reflected in the fact that the vast majority of them believe that the current environment is not the right environment to make risky business decisions. Only 27% of Hungarian finance executives surveyed think that now is the time to take risks, while 73% continue to prioritise safety. 

When it comes to risks, the most cited were a shortage of skilled labour, rising geopolitical tensions and increased regulatory action in Central Europe.  

However, M&A deal dynamics are slowing in the CE region.  Empirical evidence from previous crises shows that M&A activity increases in times of major market turbulence. The global economy is slowly recovering from a record weak year in 2023, when many companies struggled with rising capital costs and fears of recession, reflected in the fact that less than half of CE executives, 45 percent, now believe M&A is on the rise.  In contrast, 55 percent of Hungarian respondents expect an increase in M&A activity at the beginning of the year. This could mean that there is some instability in the market and in the recovery from the crisis. This is in line with the attitude we are seeing in risk management. 

Finance directors' forecasts for 2024 suggest a slightly lower level of uncertainty about the external environment than in 2023.  Hungarian managers are more optimistic than average, with 27% expecting low external financial and economic uncertainty, 55% normal and only 18% high.  

Cautious optimism is also reflected in their own company's financial outlook, with 37 percent of finance executives expecting improved results, while almost the same proportion expect their results to stagnate and 27 percent expect a deterioration in 2024 compared to last year.  Hungarian executives are perhaps slightly more optimistic than average, with 55% expecting a similar result this year to 2023, 36% expecting an improvement and only 9% expecting their own company's results to fall.