Lingering Macroeconomic Factors Curb CFOs’ Outlook for North America’s and Other Regions’ Economies, but Plans for Technology and M&A Investment Signal Hope for 2024: Deloitte CFO Signals™ 4Q 2023

NEW YORK, Jan. 9, 2024

Key Takeaways

• CFOs who rate the current North American economy favorably in the 4Q23 survey plummeted 10 points since the previous quarter, to 47% from 57%.
• Net optimism for CFOs’ own companies’ financial prospects also fell, to +11 from +22 in the 3Q23 survey.
• CFOs lowered their year-over-year (YOY) growth expectations for revenue, dividends, earnings, capital investment and domestic hiring, but raised them for domestic wages/salaries.
• Slightly more than one-third (35%) of CFOs said U.S. equities are overvalued, compared to 56% saying the same in 3Q23.
• CFOs indicated Inflation/interest rates/liquidity impact, macroeconomics and geopolitics as the top-three factors that could most constrain their companies’ ability to achieve financial performance goals in the next 12 months.
• Eighty percent of CFOs said they expect their companies to embed more automation/digital technologies into their operations in 2024, while 76% expect digital transformation and technologies to play a greater role in achieving their companies’ strategy.
• Just over half (51%) of CFOs estimated 1% to10% of their companies’ growth in the next three years to come from M&A while 19% indicated between 11% and 50% of growth could derive from M&A in that period.
• Sixty-five percent of CFOs said they expect their companies to offer a hybrid work arrangement in 2024.

Why it matters to CFOs

Each quarter, CFO Signals™ tracks the thinking and actions of leading CFOs representing North America's largest and most influential companies. Since 2010, the survey has provided key insights into the business environment, company priorities and expectations, finance priorities, and CFOs' priorities. Participating CFOs represent diversified, large companies, with 81% of respondents reporting revenue in excess of $1 billion. Nearly one-quarter (24%) of CFOs are from companies with greater than $10 billion in annual revenue.

Economic outlook

CFO sentiment toward current economic conditions in North America, Europe, China and South America fell. In contrast, CFOs upped their views toward current economic conditions in Asia excluding China, with 28% of CFOs considering current conditions as good, an increase from 24% in 3Q23. 

Slightly under half (47%) of CFOs rated the current economy In North America as good or very good, a notable decrease from 57% in 3Q23. Just 9% of CFOs noted current economic conditions in Europe as good or very good, a dip from 11% in 3Q23. Meanwhile, 3% of respondents signaled China's current economy as good or very good, down from 8% in the prior quarter’s survey. Finally, 8% of CFOs considered South America’s current economy as good or very good, down slightly from 9% in 3Q23.   

A similar downward trend can be seen in CFOs’ outlook for regional economies 12 months out. For example, 37% of CFOs said they expect economic conditions in North America to improve, a drop from 46% in the previous quarter. Only 16% of CFOs expect conditions in Europe’s economy to improve in a year, down from 29% in 3Q23. Twelve percent of surveyed CFOs anticipate better economic conditions in China in a year, down from 20% the previous quarter. CFOs’ 12-month outlook for other economies in Asia excluding China dipped slightly, with 26% anticipating better conditions vs. 27% in the previous quarter. 

There were some signs of optimism for South America’s economy, with 18% of CFOs expecting conditions to improve in the year ahead, up from 9% in 3Q23.

Own-company optimism and risk

The percentage of CFOs expressing optimism for their companies’ financial prospects decreased to 38% from 41% in the prior quarter, while those expressing pessimism rose to 27% from 19% in 3Q23. As a result, CFOs’ net optimism fell to +11 from +22. In line with this fall in optimism, the proportion of CFOs who believe now is a good time to take greater risks (38%) was outweighed by those who say now is not a good time to do so (62%). The gap may be influenced by what CFOs see as the top three constraints on their companies’ ability to achieve their financial performance goals in the next 12 months: inflation/interest rates/liquidity impact, macroeconomics, and geopolitics.

Key operating metrics

In 4Q23, CFOs lowered their year-over-year growth expectations from 3Q23 levels across five of six operating metrics tracked by CFO Signals. Growth expectations for revenue dropped to 5.1% from 5.5%, while expectations for growth in earnings decreased to 6.8% from 8.3%. CFOs’ expectations for growth in dividends dipped to 2.6% from 2.8%, and their growth expectations for capital investment fell to 6% from 6.3%. CFOs’ expectations for growth in domestic hiring fell to 1.6% from 1.8%; in contrast, they raised their expectations for domestic wages and salaries to 3.8% from 3.6%.

Expectations for 2024

Concerning company strategy, more than three-quarters (76%) of CFOs expect digital transformation and technologies to play a greater role in 2024. In fact, 80% of CFOs expect their organizations to embed more automation/digital technologies into their operations in the coming year.

Nearly half (48%) plan to increase their focus on new markets inside North America versus the 30% who indicated their focus will be on new markets outside the region. Slightly more than one-quarter (26%) of CFOs say inflation will affect costs to the same degree in 2024 as it did in 2023, and half of CFOs expect their companies to raise prices for a substantial portion of their products/services to offset it.

Regarding capital, 67% of surveyed CFOs indicate they will allocate or reallocate capital to new business investments. This is particularly interesting, considering 62% of CFOs believe now is not a good time to take on greater risks. 

More than three-quarters (76%) of surveyed CFOs expect cybersecurity to be a top priority for the audit committee over the next 12 months, beyond financial reporting and internal controls, and indicate enterprise risk management (43%) and finance and internal audit (40%) as the next top priorities for the audit committee in 2024.  

As many return to work after the holidays, some may wonder: Where will work take place as the year unfolds? Sixty-five percent of surveyed CFOs said they expect their companies to offer a hybrid work arrangement in 2024. For some, that could be a silver lining or a looming cloud depending on where an organization and their talent stand on the topic.

2024 M&A strategy

Of the surveyed CFOs planning to pursue M&A and joint venture opportunities (JV), 57% say increasing competitive positioning and/or capturing sector and market leadership best describe their companies’ top M&A strategy. Strengthening a core business or raising capital follow, cited by 34% of CFOs. 

Slightly more than one-third (34%) of CFOs expect their companies to increase the average number of deals they close over the next 12 months, while just 13% expect a decline over the same period. Almost half (46%) do not expect any change, with 7% indicating don’t know/not sure.  

Looking further out, more than half (51%) of surveyed CFOs project M&A to account for 1% to 10% of their companies’ growth in the next three years, and 19% of CFOs expect between 11% and 50% of their companies’ growth to derive from M&A in that period. 

Almost half (49%) of surveyed CFOs indicate they will likely use all cash to finance their deals in the next year, while 30% expect to use alternate structures, such as JVs and strategic partnerships. 

Nearly three-quarters (71%) of surveyed CFOs say that the valuation of assets/widening bid-ask spreads is among their companies’ top-three challenges to M&A or deal success. Integration/divestiture (36%) and the status of debt markets (30%) round out the top three most-often cited responses.

Assessment of capital markets

Over one-third of surveyed CFOs (35%) consider US equities overvalued this quarter, a substantial decrease from 56% in 3Q23. Nearly one-quarter (23%) of respondents regard US equities as undervalued, a notable increase from last quarter’s 9%. 

CFOs’ enthusiasm for debt and equity financing dropped again this quarter, likely due to the continued impact of high interest rates. Ten percent of CFOs found debt financing attractive, down from the previous two quarters’ 16%, while 19% considered equity financing attractive, a decrease from last quarter’s 29%.

Key quotes

At the cusp of 2024, CFOs expressed a far more conservative outlook than in the previous quarter’s CFO Signals survey, likely due to the continued impact of high interest rates, inflation and tensions caused by geopolitical conflict. However, their concerns are contrasted by signals that the new year will bring greater M&A activity, as well as investments in digital technologies both for strategic and operational purposes, indicating there may be a light at the end of the tunnel.

— Steve Gallucci, national managing partner, U.S. CFO Program, Deloitte LLP, and global leader, Deloitte Touche Tohmatsu Limited

Surveyed CFOs are looking to deploy capital via M&A as a growth lever in 2024. This finding aligns with the results of our recent ‘2024 M&A Trend Survey: Mind the Gap.’ Should the Federal Reserve come through on expectations for reduced interest rates, that, coupled with some strategic pivots, could potentially spur more deal-making.

— Adam Reilly, national managing partner, Mergers, Acquisitions and Restructuring Services, Deloitte & Touche LLP

Download the findings from the 4Q 2023 CFO Signals survey here.

Methodology

Every quarter, Deloitte’s CFO Signals closely follows the thinking and priorities of leading CFOs who represent some of North America’s largest and most impactful organizations. This report summarizes CFOs’ opinions across four key areas: business environment, company expectations and priorities, financial priorities, and personal priorities.

The CFO Signals survey for the fourth quarter of 2023 was conducted between Nov. 6, 2023, and Nov. 22, 2023. A total of 124 CFOs participated in this quarter’s survey. This survey seeks responses from CFOs across the United States, Canada and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. Participation is open to all industries except public sector entities.

For more information about Deloitte CFO Signals or to inquire about participating in the survey, please contact NACFOSurvey@deloitte.com.

About Deloitte

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