Q3 2019 Global CFO Signals™

The shadow of uncertainty grows longer

Uncertainty is taking a toll on CFO optimism in the 20 surveys reporting in this edition of Global CFO Signals.

How does CFO sentiment in Q2 break down?

A synopsis by region:

CFO sentiment in Q3 2019

For CFOs, uncertainty is a constant companion. At times, though, there can be a little too much togetherness.

This seems to be one such period. Despite the continued strength of the US economy and equity markets, CFOs are still facing unknowns that stretch from the resolution of the Brexit negotiations to the US-China trade war to shifting monetary policy. Add in uncertainty about the Chinese economy and renewed concerns about stability in the Middle East, and it is safe to say that few CFOs have a clear line of sight into 2020 and beyond.

What is clear is that uncertainty is taking a toll on CFO optimism in the 20 surveys reporting in this edition of Global CFO Signals. Take sentiment in North America, for example. There, net optimism fell from last quarter’s +9 to -5 this quarter—the first negative reading in nearly seven years. In the Middle East, where 15 countries reported, sentiment also took a negative turn, with net optimism falling from +19 a year ago to -1 now. And in many of the 17 European countries included in this report, CFOs’ confidence in their financial prospects also waned compared with six months ago.

As usual, there are some bright spots. In Greece (net +41), Portugal (+8), Luxembourg (+6), and Denmark (+3), CFO sentiment regarding their companies’ prospects remains positive. Helping this is the fact that revenue expectations are positive in all the European countries reporting, except the UK (net -36%).

Still, even for those countries uncertainty can be a burden when it comes to planning—and research has confirmed it. The Bank of England recently released an analysis, based on anonymized data from Deloitte’s UK CFO Survey, that showed that CFOs who report elevated uncertainty are far less likely to prioritize expansionary strategies, such as increasing capital expenditure. And in a speech* drawing on the findings, Michael Saunders, a member of the Bank’s Monetary Policy Committee, noted that whereas previous spikes in uncertainty have been temporary, current uncertainties have become entrenched, with roughly one‑third of UK CFOs reporting high or very high uncertainty for four consecutive quarters, an unprecedented level of persistence.

“Corporate caution has indeed had a dramatic effect on investment, which has slowed sharply since the EU referendum,” says Debapratim De, senior economist, Deloitte UK. “The speech was widely interpreted as making a case for lower interest rates and triggered a decline in market rate expectations.”

In this environment, what is certain is that CFOs in the UK and elsewhere are prioritizing cost control. In nine of the European countries reporting, CFOs ranked cost control as their top strategic priority for the next 12 months, while only two named all growth strategies in their top three. And in the Middle East, cost control now the number one priority, up from sixth in 2018.

While CFOs in North America still indicate a bias toward revenue growth over cost control (51% versus 22%), a shift toward cost control may be coming—as evidenced by the fact that these CFOs’ expectations for earnings growth hit a new survey low this quarter. Such a turn would not be surprising, says Patricia Buckley, managing director, Economic Policy and Analysis, Deloitte Services LP (US), adding that a major culprit is business concern over the trade war between the US and China. “Complicating matters, of course, is that the US and Chinese views of the future of trade policy may be tied to political uncertainties as we head into 2020.” That, she said, is why “scenario planning is even more important in the current environment.”

Then there is still the overarching uncertainty over the future prospects for the economy. As Deloitte Global’s Chief Economist Ira Kalish put it, “The world increasingly appears to be on recession watch.” And “North American CFOs tend to agree,” says Greg Dickinson, managing director, Deloitte LLP (US), who leads the North American survey, pointing out that several key metrics hit new multi-year and historic (i.e., 38-quarter) lows this quarter. Moreover, CFO expectations for capital spending, earnings, and hiring all declined.

Similarly, in Europe, “the effects of uncertainty are already being felt,” adds Michela Coppola, who heads Deloitte’s European CFO Survey, noting that “it is weakening demand that is currently the main concern for European CFOs.” Little wonder then that “the strategies companies are prioritizing to deal with challenging economic conditions are becoming more defensive, with cost cutting the top priority for CFOs in a majority of countries,” she adds.

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CFO sentiment in Q2 2019

The list of unanswered questions hanging over this edition of Global CFO Signals is long and intertwined:

  • How—and when—will the US-China trade war be resolved?
  • If there is a Brexit deal by the October 31, 2019, deadline, what will it look like? 
  • What monetary policy will the US Federal Reserve pursue going forward?
  • Is the Chinese economy at risk for a hard landing?
  • If there is a slowdown or recession, how long will it last and how deep will it cut?

And for the CFOs in the six surveys (representing eight countries) reporting in the second quarter, the wait for answers seems to be weighing heavily on their outlooks.

Take sentiment in North America, for example. There, net optimism declined from last quarter’s +16 to just +9 this quarter—the second-lowest reading in three years—amid continuing concerns over trade and political turmoil. In Japan, worries over trade have kept the outlook solidly negative, although net optimism did rise to -32 from -44 last quarter. And in the United Kingdom, where the survey period coincided with the leadership campaign for the Conservative Party, net optimism fell to -35 (Q1: -24) given the continued uncertainty over Brexit.

Similarly, CFO optimism in Australia remains at a relatively low level over worries about global and domestic economic conditions. Net optimism there now sits at +4 compared with +29 a year ago. The fall in optimism partly reflects CFOs’ concerns that the US-China trade war is hurting their business prospects,” says David Rumbens, partner, Deloitte Access Economics (Deloitte Australia), adding that 44 percent of CFOs say it has already had an impact. “However, the negative effects of the trade war have been less than originally expected.”

Elsewhere those overhanging questions are affecting decision-making for CFOs. In Belgium, where up until this quarter investment indicators had remained bullish, capital expenditure expectations declined by 10 percentage points and headcount estimates took a larger and more unexpected hit (-31pp). In the United Kingdom, only 4 percent of CFOs say now is a good time to take risk onto the balance sheet. And in North America, about half of CFOs say they are biased toward revenue growth, while 29 percent claim a bias toward cost reduction, the second-highest cost reduction focus in the last four years.

As companies head deeper into the second half of 2019, those questions will be critical to CFOs’ planning processes and investment decisions for 2020, says Greg Dickinson, managing director, Deloitte LLP (US), who leads the North American CFO Signals survey. That is one reason the Q2 2019 survey asked CFOs what type of downturn they could potentially face. The answer? About 80 percent expect any downturn to be mild, and about half of those predict it will be short. “These expectations,” says Dickinson, “may help explain why, even as CFOs’ expectations for revenue, earnings, and hiring growth declined, their expectations for capital spending rose.”

Planning in the United Kingdom, of course, is hampered by the lack of clarity on Brexit. “The weight of economic opinion may have shifted toward low-to-no growth—and not a recession—next year in the event of a no-deal Brexit,” says Debapratim De, senior economist, Deloitte UK. But the uncertainty seems to have “UK CFOs frozen in terms of capital expenditure”—a situation that may have longer-term repercussions for competitive advantage globally.

Other open questions promise to equally frustrate CFOs as they eye 2020. The Chinese economy, for example, slumped to its lowest level in 27 years in July—and that was before the recent escalation in the US-China trade war. Little wonder that among Australian CFOs, net optimism about the impact of China has turned into net pessimism (-25 percent, down from 33 percent this time last year), as more CFOs believe that it is worth preparing for the possibility of a hard landing for China.

Finally, there is still the question of whether the Federal Reserve continues easing interest rates in the wake of the quarter point cut in July—probably something CFOs cannot count on. What they can count on, though, is that even when some of these issues eventually resolve, the answers will be replaced by equally compelling questions.  

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Q2 2019 CFO sentiment synopsis by region


Outlooks continue to inch downward across North America. Regarding their companies’ prospects in the second quarter, 30 percent of CFOs express rising optimism (32 percent last quarter) and 21 percent express declining optimism (16 percent last quarter). That muted optimism, however, is coupled with continued declining assessments of the North American, European, and Chinese economies. In fact, this quarter, just 24 percent of CFOs expect better conditions in North America in a year—well off the 59 percent from Q1 2018 and a new survey low. Moreover, CFOs’ expectations for revenue, earnings, and domestic hiring all declined again and sit at two-year lows.


Caution is also the operative word in the two countries reporting from Asia-Pacific. In Japan, for example, only 10 percent of surveyed CFOs indicate that they are “more optimistic” about their companies’ financial prospects, although that is up from 6 percent last quarter. CFOs’ outlooks there are colored by the US-China trade war and the Chinese economic slowdown, as well as the US-Japan talks on the Trade Agreement on Goods (TAG). Meanwhile, in Australia, negativity about the Chinese, European, and Australian economies have dampened positivity about future prospects (down from a net +73 a year ago to +60 today). Recent rate cuts by the Reserve Bank of Australia (RBA), though, are seen as positive for that country’s economy by 76 percent of respondents.


For the three countries reporting in Europe, outlooks are heavily dependent on local conditions. In the United Kingdom, for example, 83 percent of respondents now view Brexit as leading to a long-term deterioration of the economy. Moreover, 62 percent of them expect hiring to decrease over the next three years due to Brexit—the highest level since 2016. In Belgium, net optimism turned slightly negative this quarter (-2), amid plummeting confidence (-23 percent) in the Belgian government’s ability to set the right priorities for fiscal policies. In Russia, though, despite concerns over stagnation in that economy, net optimism increased and a perceived easing of uncertainty led to a 20 percentage point increase in risk appetite.

Obviously, each region is confronting unanswered questions of its own. And collectively, they are keenly watching for answers to the ones posed here. Through it all, though, it appears CFOs are staying focused on their roles as value creators. “We continue to see CFOs express strong concerns around trade policy and tariffs, as well as heightened concerns over political turmoil,” says Dickinson. “But in the face of external challenges, CFOs say they will be personally focused on profitability, corporate strategy, and growth. Maintaining a steady focus on these priorities will be critical for CFOs as they address ongoing uncertainties.” 

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Global CFO Signals: By the numbers

Risk appetite

Along with optimism, CFOs’ risk appetites continued to decline around the world. In Europe, the biggest negative net balances were found in the UK (-87%), Germany (-83%), and Turkey (-83%). The relative “bright” spots included Norway (-35%) and Greece (-38%), even though risk appetite was negative. In North America, CFOs’ risk appetite has flatlined around 40% since late 2018. This quarter, it decreased slightly from 42% to 40%—the lowest level since this question was first asked in 2015.


Not surprisingly, uncertainty is up in many of the surveys. In Europe, net levels are particularly high in the UK (+96%), Germany (+95%), and Switzerland (+65%). In Denmark, however, 59% of CFOs consider the level of uncertainty to be normal, as do 61% of Norway’s CFOs. Still, it should be noted that the Bank of England’s recent analysis using Deloitte UK CFO Survey data reveals that, on average, CFOs who report higher levels of uncertainty expect slower growth in investment and hiring.


In Europe, net expectations for revenue growth were particularly strong in Belgium (+79%) and Greece (+67%), whereas operating margin expectations fell markedly in Austria (-41 percentage points), Spain (-24 percentage points), and Norway (-24 percentage points) from the last survey. Meanwhile, growth expectations in North America increased for revenue (3.8% to 4.3%), but declined for earnings (6.1% to 5.6%), a new survey low. In Japan, 39% of CFOs expect “large” or “very large” earnings growth, down slightly from 40% last quarter.


The outlook on hiring has tempered in many of the countries reporting. In North America, for example, expectations for domestic personnel growth fell from 1.9% to 1.6%, a three-year low, even though talent remains one of CFOs’ top internal risks. Across Europe, though, hiring intentions remain noticeably negative in the UK (net -66%) and Iceland (net -34%), whereas Belgium (net +42%) and Greece (net +28%) remain bullish on adding headcount.

Corporate strategy

In sports, defense often wins games, and CFOs are clearly on the defensive. Nine of the European countries reporting ranked cost control as their top strategic priority for the next 12 months. And in the Middle East, cost management is now the number one priority, up from sixth in 2018. This correlates with the main risk identified by CFOs: the economic outlook and the need to focus their attention on priorities that will address that risk. Still, in North America, CFOs still favor revenue growth over cost reduction (51% versus 22%), despite strong economic worries.


In an environment of still shifting monetary policy, both bank borrowing and internal financing remain the preferred sources of funding among European CFOs. It is worth noting that their views on corporate debt improved this time, with only Denmark (net -41%) rating it as unattractive. In North America, debt financing remains attractive for 87% of CFOs (up from 77%), but the appeal of equity financing fell for both public and private companies.

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