2015 Q2 Global CFO Signals


2015 Q4 Global CFO Signals™

Braced for a bumpy ride

As CFOs enter 2016, there are several specific overhangs affecting outlooks in the eight country/regional reports in this edition of Global CFO Signals, including China, the strength of the US dollar, and uncertainty over oil prices. Still, many CFOs surveyed remain confident about their own companies’ prospects and future growth.

How does CFO sentiment in 2015 Q4 break down? What follows is a synopsis by region:

View or download the report for more on CFO sentiment.

CFO Sentiment 2015 Q4

As CFOs enter 2016, there are several specific overhangs affecting outlooks in the eight country/regional reports in this edition of Global CFO Signals. Consider, for example:

  • Concerns about the pace of the global recovery and renegotiation of the UK’s membership in the European Union are weighing on business sentiment among British CFOs. Optimism fell through 2015 and ended the year at its lowest level since the second quarter of 2012, when the euro area was in recession.
  • In North America, the upcoming US presidential election is looming large. About half of CFOs believe it will impact future US economic performance.
  • Among Japan’s CFOs a “gradual economic recovery” is anticipated, but further decline in the Chinese economy is seen as a huge risk to that scenario.
  • Meanwhile, in Russia, the continued devaluation of the ruble and increased government regulation, are just two of the reasons why only 27 percent of CFO are optimistic about their financial prospects, down from 37 percent last survey.

These factors were affecting country-specific optimism even before the current bout of global market volatility. But given that the surveys were conducted prior to those gyrations, “the factors may be even more magnified now,” notes Ira Kalish, Chief Global Economist for Deloitte Touche Tohmatsu LLP.

Still, many CFOs surveyed remain confident about their own companies’ prospects and future growth. In Central Europe, 40 percent expect an increase in margins, capital spending, and employment. Some 80 percent of North American CFOs say investing for growth remains the top priority for the use of cash. And Belgium’s CFOs will focus on expansionary strategies in 2016, although productivity/efficiency and on-going cost control remain high priorities.

Going forward, however, there remain several common overhangs, says Kalish, citing China, the strength of the US dollar, and uncertainty over oil prices. But the good news is that interest rates shouldn’t be on the list—a fact that should allow CFOs continued access to capital and the ability to grow. There may be incremental rate movements, says Kalish, “but at the end of the day, we will still have easy monetary policy.”


Regional perspectives


In North America, CFOs remain optimistic this quarter—just a little less so. This quarter’s net optimism index of +10.7 may be the 12th consecutive positive reading, but it is below last quarter’s +14.2 and now sits at the lowest level in three years. But in contrast to their declining sentiment, CFOs’ expectations for revenue, earnings, and capital spending growth are up from their 2Q15 lows. CFOs again voiced concerns about China. Overall, though, there seems to be a belief among many that North America (and the US in particular) can continue to shoulder the burden of economic growth again in 2016—despite interest rate increases and the election.


While CFOs in Japan do foresee a slow recovery, more than half (52 percent) view the level of uncertainty as high or very high. Some of the factors—aside from China—contributing to that perception include; ”terror risks abroad,” ”monetary policies in US and EU,” ”political instability in Europe,” and ”further decline in commodity prices.” Those factors contributed to a net optimism of -23 percent, Still, most CFOs are expecting sales and earnings growth trends to continue. It is worth noting, however, that the percentage who expect declining sales/earnings increased by 13 percentage points, indicating a widening of negative perceptions over future growth.


CFO sentiment in Europe tempered most notably in the UK this quarter. Shrinking optimism is very apparent in CFOs’ risk appetite: down to 37 percent in the fourth quarter, from 47 percent in the third quarter and a peak of 72 percent in late 2014. Moreover, CFOs’ strategies have turned markedly more defensive, with cost control topping their list of priorities for the first time in more than a year. Elsewhere, however, optimism among Belgium’s CFOs, has rebounded, and now the vast majority expect revenues, operating margins, and profit before taxes to increase in 2016.

An increasingly upbeat story can be found in Switzerland, where despite still adjusting to the removal of their currency floor, almost half (45 percent) of CFOs rate their company’s prospects over the next 12 months as positive. Meanwhile, in Central Europe, which has 11 countries reporting, finance chiefs are somewhat more optimistic about the future of the region’s economy, but remain united in their concern about Greece’s potential to destabilize progress. They are also united in their positive outlooks for margins, capital expenditures, and hiring. Finally, in Russia, which remains in recession, multiple barriers to business development continue to dampen CFO optimism. In fact, the survey shows that by the end of 2015, the negative effect of sanctions rose by seven percentage points to 64 percent, while exchange rate fluctuations continue to be a major concern for most companies (73 percent).

Global CFO Signals - By the numbers

Risk appetite

Risk appetite is being curbed in some countries. In the UK, the proportion of CFOs who think now is a good time to take risk onto the balance sheet dropped to 37 percent, from 47 percent in Q3 2015. Likewise, in Switzerland, risk appetite has fallen since the end of 2014, and now only 20 percent believe this is a good time to be taking greater risk. In both Central Europe and Russia, risk appetite stands at 29 percent, but in Russia that is up from 14 percent in Q1 2015.


Uncertainty continues to be a factor in decision-making. In Switzerland, almost three-quarters (73 percent) say that the level of financial and economic uncertainty facing their business is high, while 52 percent of the Japan’s CFOs see it as high or extremely high. In Russia, however, the aggregate level of uncertainty regarding strategic decision-making rose by 14 percentage points during 2015 and now stands at 74 percent.


Expectations for certain growth metrics remain upbeat. North America’s CFO expectations for revenue growth rose to 5.9 percent, significantly up from last quarter’s 4.4 percent. Among Belgium’s CFOs, the vast majority expect revenues, operating cash flow, profit before taxes, and operating margins to increase in 2016. Swiss CFOs indicated an increased willingness to expand capital spending and hiring. Still, while a majority of UK CFOs still expect corporate revenues to increase, the outlook is at its weakest in two-and-a-half years.

Interest rates

Interest rates are being watched closely. In the UK, though, almost two-thirds of CFOs say rates would have to rise more than 100 basis points before their businesses cut planned investment or employment. Some 56 percent of Switzerland’s CFOs do not expect rates to rise before 2018, and 17 percent believe they will not rise until 2019. In Belgium, 60 percent of CFOs believe the long-term euro rates will increase only slightly in the next 12 months. And in North America, interest rate concerns are substantial, but below where they were a quarter ago.

Corporate strategy

Cost control is being eyed by many. In the UK, for the first time in a year CFOs rate cost reduction as their number one priority for the next 12 months and placing greater emphasis on other defensive strategies such as increasing cash flow and reducing leverage. Among Russia’s CFOs, the top two strategies are restructuring costs and reducing costs. However, in North America, there was a reversal. The last two quarters indicated a shift toward cost reduction, but this quarter shows a slight shift back to growth.

M&A activity

The M&A outlook is mixed. Some 79 percent of the Netherlands’ CFOs expect M&A activity to increase in the next 12 months, and 48 percent expect their own companies to make a deal. For the 63 percent of North American CFOs who expect to complete deals, 60 percent point to scale efficiencies and 54 percent expect to expand into new markets. Among Central Europe’s CFOs, 50 percent expect an increase in activity. In the UK, however, only 19 percent of CFO are prioritizing expanding by acquisition, down from 22 percent last quarter.


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