CFO Signals™: 1Q 2022

This quarter, CFOs indicated dimmer views across several areas, including the economic outlook for the North American and European economies, growth expectations for earnings and capital spending, and their optimism for their own companies’ financial prospects.

Judging by some of the responses to the 1Q22 survey—particularly to the questions seeking CFO assessments of conditions across regional economies 12 months out—CFOs may have had a foreboding of the devastation taking place in Ukraine and the implications for the global economy. Comments regarding their most worrisome risks also made clear that talent/labor shortages, rising inflation, and geopolitical instability weigh heavily on their minds. Survey highlights are included below. For a more detailed look at this quarter’s results, be sure to download the report.

CFOs’ views of regional economies and capital markets

For the most part, CFOs expressed less optimism for the health of regional economies looking a year ahead. The 36% of CFOs expecting North America’s economy to be better 12 months out was a drop from 45% in the prior quarter. Similarly, 26% of CFOs said they expect Europe’s economy to improve in a year, a sharp decline from 40% in 4Q21. There was also a drop in the percentage of CFOs expecting Asia’s economy, excluding China, to improve in 12 months, at 33%, compared to 37% in 4Q21. In contrast, 31% of CFOs anticipated China’s economy to be better in 12 months, up from 28% in the prior quarter, and 16% of CFOs expected South America’s economy to improve in a year, up from 12% in 4Q21.

This quarter a smaller percentage (72%) of CFOs considered US equities to be overvalued, compared to 88% in the 4Q21 survey. In addition, 47% of CFOs said now is a good time to be taking greater risk, a decline from 57% in the prior quarter.

Own-company financial prospects and year-over-year growth expectations

The percentage of CFOs (38%) considering their own companies’ prospects as being better compared to the three months prior to participating in the survey declined from 4Q21’s 49%. CFOs also lowered their year-over-year growth expectations for earnings, capital spending, domestic hiring, and domestic wages and salaries from the prior quarter. In contrast, they raised their growth expectations for revenue to 9.1% from 7.8% in 4Q21, and for dividends, to 3.9% from 3.7% in the prior quarter.

Chief risk concerns

As in 4Q21, talent/labor appeared at the top of CFOs’ list of most worrisome internal risks, but this quarter there was a sharper focus on retention. CFOs also noted concerns over prioritization of initiatives and strategy execution. In addition to inflation and geopolitical instability, CFOs cited policies and regulation as a key external risk. Other external risks included supply chain issues, a potential downturn in the economy, and rising interest rates. Some CFOs expressed concern over new COVID-19 variants.

Managing the information technology (IT) function

Our special section this quarter asked CFOs several questions related to the IT function, including reporting relationships between the CFO and IT leaders, areas for improvement to gain greater value from IT, actions organizations have taken to enhance the function, IT spend as a percentage of annual revenue, and IT spend on Agile initiatives. On one hand, the responses revealed practical steps organizations are taking to derive more value from the IT function and services, and on the other hand, a lack of clarity in how the function’s effectiveness is being measured.

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