2016 Q1 Global CFO Signals


2016 Q2 Global CFO Signals™

Brexit: Overhang or hangover?

For CFOs identifying potential risk exposures and considering strategies for doing business in the UK and the EU, there is some comfort in having the vote over without a widespread impact to the world economy.

How does CFO sentiment in 2016 Q2 break down? What follows is a synopsis by region:

  • Australia: Confidence on the rise in a sea of uncertainty
  • Belgium: Post Brexit vote outlook
  • Japan: Tempered outlooks
  • North America: Less concern about markets; more about oil and politics
  • Russia: Few positive changes
  • Switzerland: External environment dominates CFOs’ concerns
View or download the report for more on CFO sentiment.

CFO Sentiment 2016 Q2

Results in this quarter’s Global CFO Signals heavily reflect the run up to the UK’s Brexit vote on June 23—and its aftermath. And judging from the nine countries reporting in the Q2 2016 edition, the impact depends on both perspective and exposure. Take the results in the three countries that surveyed CFOs post the vote:

  • For UK CFOs, the uncertainty caused by the outcome sent optimism dropping to its lowest level since the survey began in 2007;
  • Similarly, in Belgium, CFO optimism fell to its lowest level in three years;
  • Meanwhile, in Japan, all surveyed CFOs expect the UK economy to decline, and 90% expect other European economies to decline as well in the wake of Brexit.

Some other countries that surveyed before the vote recorded muted optimism given the Brexit overhang. But there were other risks at play as well, such as the strength of the US dollar, unstable oil prices, and uncertainty over monetary policies and the US Presidential election.

“Brexit was a confidence shock,” says Chris Richardson, chief economist, Deloitte Australia, “when confidence was already a problem.”

One major exception: North America’s optimism rebounded strongly from Q1, when it hit its lowest level in more than three years. But given the low starting point, the rebound was relative, not absolute. And to Dr. Patricia Buckley, managing director, Economic Policy and Analysis, Deloitte Research, Deloitte Services LP, even that optimism might be short-lived, given that the last three quarters of GDP reflected a contraction in business investment, a finding she describes as “the ultimate expression of a lack of business confidence.”

Going forward, Brexit’s impacts may be contained and slow to evolve. But they are likely to include a period of uncertainty and slower UK and European Union (EU) economic growth in the short- and long-term, according to Dr. Ira Kalish, chief global economist, Deloitte Touche Tohmatsu Limited, and Ian Stewart, chief economist for Deloitte LLP in the UK (see “Brexit impacts: Considerations for US and UK CFOs”).

Still, for CFOs identifying potential risk exposures and considering strategies for doing business in the UK and the EU, there is some comfort in having the vote over without a widespread impact to the world economy. The lesson?

Just because something is on the front page doesn’t mean it will cause drastic changes, says Richardson.


Regional perspectives


Substantial improvements in equity markets and consumer confidence fueled a reversal in several of last quarter’s downward trends in North America. Year-over-year growth expectations improved across the board (yet most remain below survey averages), and net optimism came in strong at +30.0 (compared with +1.7 in Q1).

Concerns about oil prices and policy unknowns heading into the November election, however, translated into assessments of the North American economy that were only slightly better than last quarter’s survey lows. But CFOs’ confidence in Europe remains weak, given both concerns about Britain’s potential exit from the EU and other regional challenges. Meanwhile, assessments of China improved, but CFOs began voicing rising concerns about government debt there—and in other regions as well.


The two countries reporting in Asia-Pacific—Australia and Japan—documented very different CFO outlooks. In Australia, for example, better news from China and the associated stabilization of key commodity prices— however modest and fleeting—appear to be supporting an increase in confidence among CFOs. This was despite fears of Brexit and a knife-edge federal election result in that country. In Japan, though, CFOs remain wary despite the victory of the ruling coalition in the Upper House election when the survey was conducted. Their responses seem to indicate that most CFOs do not expect political stability will necessarily lead to improved economic growth. In fact, some 40% of CFOs reported decreased optimism, and 73% reported uncertainty as “high” or “very high.”


European results were affected by the fact that two countries (UK and Belgium) conducted their surveys after the Brexit vote, while the other three (Netherlands, Russia, and Switzerland) were surveyed prior. The impact on sentiment was particularly negative in the UK, where uncertainty is at levels last seen during the euro crisis of 2012. Risk appetite took a hit there too, as well as in Belgium, where just 23% of CFOs say now is a good time to take risk onto their balance sheet, down from 38% in the first quarter and 44% a year ago. Meanwhile, among Switzerland’s CFOs, there is some good news: for the first time since the end of 2014, a majority of CFOs rate the country’s economic prospects over the next 12 months as positive. The same cannot be said for Russia’s CFOs, who have their own concerns separate from Brexit, including weakness in the ruble, stress in the financial system, and dwindling consumer demand.

Sub-Saharan Africa

Similarly, among the regions reporting in the annual Sub-Saharan Africa survey, there are significant differences. South African CFOs are somewhat less optimistic about the performance of their companies in 2016, with 57% expecting a slight or significant improvement in performance compared with 61% in 2015. Elsewhere, there has been a drop in optimism among CFOs surveyed in Southern Africa, while CFOs in West Africa and East Africa have a somewhat more positive outlook for their companies in 2016. Many of their risk factors differ too, but currency volatility weighs heavily across the board. And those risks have a significant majority (84% in South Africa alone) of CFOs saying they will focus on improving operational efficiency and process optimization this year.

Such defensive stances may prove prudent. According to Deloitte’s economists, while Brexit’s fallout may seem contained, there may still be cause for concern.

As growth slows in Europe, adding to slow growth in China and Japan, it may cascade through other regions, says Buckley.

In other words, the hangover may linger.

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Global CFO Signals - By the numbers

Risk appetite

Risk appetite is tempered at best this quarter. A sharp spike in uncertainty caused by the Brexit vote has led to a particularly big drop in the UK, where just 8% think now is a good time to take risk onto the balance sheet—the lowest level in more than six years. In Switzerland, 70% do not think it is a good time, and neither do 77% of Belgium’s CFOs. In the Netherlands, though, some 52% of CFOs are willing to take risk onto their balance sheets, as are 44% of Australia’s finance chiefs.


Uncertainty continues to dampen CFO decision-making—and outlooks. In Japan, some 73% of CFOs view current levels as either “high” or “very high,” as do 72% of Russian CFOs and 53% of Dutch finance chiefs. UK CFOs’ perceptions of economic and financial uncertainty have risen to levels last seen during the euro crisis five years ago. And in Australia, 80% of finance chiefs surveyed believe current levels of uncertainty are actually holding back business investment.


Revenue expectations are far from robust, with a particularly sharp decline in the UK, which conducted its survey after the Brexit vote. In the Netherlands, though, 65% of CFOs expect an uptick in revenue over the next 12 months. Meanwhile, the outlook on earnings has deteriorated in Japan, where 43% of the CFOs expect a decline, and the net result turned negative for the first time in the survey. On the other hand, earnings expectations in North America, which hit a survey low 6.0% in Q1 2016, rebounded to 7.7%.


Hiring remains anemic. In the Netherlands, for example, almost one-third (32%) of CFOs expect to reduce their workforces, as do 29% of Switzerland’s CFOs. Moreover, in the UK, 66% of CFOs expect to cut headcount in the next three years due to Brexit. Meanwhile in North America, domestic hiring growth expectations did rise—but only to a less than stellar 1.1% from last quarter’s survey-low of 0.6%.

Corporate strategy

Defensive strategies are a common focus heading into the second half of 2016. Thanks to Brexit, reducing costs and increasing cash flow are again top priorities for CFOs in the UK. Improving operational efficiency and process optimization are top of mind in South Africa, Southern Africa, and East Africa. And in Russia, the strategic focus is on restructuring and reducing costs .In North America, though, companies are more biased toward growing revenue and investing cash than they have been in several quarters.

CFO Priorities

In North America, CFOs say their CEOs want to them to be “fact providers,” “challengers,” “stakeholder managers,” and “capital managers.” Which role dominates may be influenced by factors, such as accelerated transformation, innovation-led strategy, technology, and regulatory change going forward, according to Australia’s CFOs. To cope with increased complexity, CFOs reporting from Sub-Saharan Africa are looking for solutions to retain staff and find work/life balance.

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