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CFO Signals™: 2Q 2022

Amid managing the challenges of recovering from the pandemic and supply chain disruptions, CFOs are bracing their organizations for inflation, interest rate hikes, shrinking talent pools, and the unfolding impacts of the Russia-Ukraine war. CFOs lowered their year-over-year growth expectations for revenue, earnings, and capital spending compared to 1Q22.

The past few months have been arduous to say the least, judging from our 2Q22 CFO Signals survey results, and many issues are keeping them up at night. For example, talent, retention, and strategy execution are CFOs’ top internal risks in 2Q22. On the external front, macroeconomic issues, including inflation and geopolitics, are among CFOs' top worries. The Russia-Ukraine war and its impact on supply chains also weigh heavily on CFOs’ minds. Add to that the impacts of climate change, which many CFOs and their organizations are working to mitigate, based on responses to this quarter’s special focus on decarbonization. It’s those efforts that offer a glimmer of brightness against the backdrop of CFOs’ declining optimism.

For a more detailed look at this quarter’s results, be sure to download the report.

CFOs’ views of regional economies and capital markets

Compared to 1Q22, CFOs’ sentiment toward the five economic regions covered in CFO Signals soured on both current and future economic conditions. CFOs’ assessments of the regional economies’ future conditions had already started to decline last quarter, and they have dropped even further across the board. Eighteen percent of CFOs said they expect North America’s economy to improve in 12 months—the lowest proportion since 3Q19.

When considering current economic conditions in North America, the percentage of CFOs assessing it as good or very good fell to 52% in 2Q22, from 64% in 1Q22. The cohort of CFOs viewing Europe’s current economy as good or very good dropped to 9% this quarter from 31% in 1Q22. Meanwhile, the proportion of CFOs who view China’s current economic conditions as good or very good declined to 12% from 29% in 1Q22. Compared to the prior quarter, the percentage of CFOs considering the current economies of Asia, excluding China, and South America as good or very good fell as well.

When asked about economic conditions 12 months out, the proportion of CFOs expecting improvement for all five regions shrunk, compared to the previous quarter. In addition, the proportion of CFOs expecting economic conditions to be worse in a year increased for all five regions, compared to 1Q22. Rising inflation, the Russia-Ukraine war, supply chain disruptions, and talent shortages—all among CFOs’ most worrisome risks—likely shape their expectations.

CFOs also revealed mixed views of the capital markets. Less than half (43%) of CFOs considered US equity markets as overvalued this quarter, compared to 72% in 1Q22. For 32% of CFOs, debt financing was attractive, down significantly from 85% in the 1Q22 survey. Less than one-quarter (22%) of CFOs regarded equity financing as attractive, down from 37% in 1Q22.

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

Chief risk concerns

With no clear end in sight for the Great Resignation, CFOs continue to experience significant challenges in recruiting and retaining talent, and so it’s not surprising to see them cite talent, retention, and strategy execution as their top internal risks. Concerns over wage inflation, employee morale, and return-to-work are adding to those worries. During the survey open period, inflation rose to its highest level in 40 years, and the Federal Reserve implemented the largest increase in interest rates in some 20 years. CFOs are acutely feeling the impact of both, citing inflation and broader economic concerns as their most worrisome external risks The Russia-Ukraine war and other geopolitical issues are also high on CFOs’ list of external risks.

Special topic: Decarbonization

With ESG at the center of Davos, this quarter’s special topic section asked CFOs several questions related to their organizations’ decarbonization efforts and their role in them. CFOs appear to be actively engaged in those efforts, including in strategic aspects. They expect to spend on average nearly 10 hours a month on such efforts next year, and they anticipate their finance organization to spend more than 109 hours on average per month on decarbonization matters. CFOs also say what their finance teams need most is clarity on methodologies and reporting standards, along with relevant data, to meet decarbonization-related requirements. They singled out increased operating and capital expenditures as the most significant costs they expect to incur to meet their organizations’ decarbonization goals. Transforming their organizations’ overall business model and value chain was cited as the next most significant area of costs. More details can be found in the report.

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