CFOs expect stronger economic performance in U.S., as well as Europe and China, leading many to consider “above-normal” risks in pursuit of higher returns.
“I would say this is the most optimistic survey we’ve ever had,” said Sandy Cockrell, Deloitte’s Global CFO Program Leader, speaking about Deloitte’s quarterly CFO Signals survey.
Following the 2016 U.S. presidential election, CFOs started off 2017 on a very positive note, and the positive outlook continued in the second and third quarters, even as CFOs voiced steadily growing concerns about geopolitical conflict and U.S. political turmoil.
“If I go back over the last number of years, the U.S. economy was really the only bright spot when you think about regional and macro economies,” said Cockrell. “My view is what’s really driving the own-company optimism is the views of the European economy and the Chinese economy.”
Here are four big takeaways from Deloitte’s fourth quarter report.
CFOs’ Economic Expectations Rose Sharply
Survey results from the fourth quarter show that CFOs overwhelmingly expect stronger economic performance in the U.S., 74 percent rating current conditions as good, up from 64 percent last quarter.
CFOs’ assessments of Europe’s and China’s economies hit new survey highs. On China’s economy, 49 percent of CFOs say current conditions are good (up from 32 percent and a new high), and 41 percent expect better conditions in a year (up sharply from 30 percent and also a new high).
Perceptions of Europe’s current state and trajectory both hit new survey highs. Thirty-five percent of CFOs say current conditions are good (up from 29 percent, and well above the levels registered over the past five years), and 33 percent expect better conditions in a year.
Cockrell explained the significance, “What we have seen in the last couple years is optimism was really hinged on the North American economy, but now that the rest of the world is really beginning to improve, I think people are feeling a lot better about their prospects because of where their footprints are.”
Own-Company Optimism Surged
Rising optimism in these economies appears to be translating to own-company optimism, which, in turn, is encouraging CFOs to consider taking “above-normal risks” to achieve higher returns.
Nearly 40 percent of CFOs say their company will take “above-normal risks,” up from 25 percent a year ago.
“The majority of CFOs are saying they’re going to grow with existing products and services as opposed to new products and services. They’re going to grow in existing markets as opposed to new markets or geographies. They’re going to grow organically as opposed to inorganically,” said Cockrell. “But you can still take on additional risks even with those strategies by doubling down on sales and distribution and focusing on marketing and advertising. But the 25 to 40 [percent] is driven by the fact that CFOs are just a lot more confident about their outlooks.”
80% of CFOs Expected Corporate Tax Rates to Decline
Though the survey closed November 17th (before the tax bill), more than 80 percent of CFOs expected corporate taxes rates to decline (up from the 66 percent a year ago).
Cockrell shared that recent conversations with clients, many of which have money offshore and trade in regions around the world, are around assessing what the international tax provisions will do for them or to them.
“The most important thing is, for the first time in years, companies now have some clarity as to what their tax posture will be because we’re not speculating around legislation. Even though there may be some winners and losers here, I think especially for CFOs, having to forecast and having to plan your business when it’s very unclear as to how tax provisions or tax legislation may affect you, that’s extremely difficult.”
Data/ Analytics is a Top Disruptor
61 percent of CFOs say that data analytics is top trend impacting longer-term business strategies.
CFOs are spending more time thinking through which solutions they want to use. There is enormous pressure to educate themselves on what the solutions can provide and what they can’t. Many are overwhelmed with data analytics, robotics, and artificial intelligence, which is evident in the report.
According to Cockrell, this connects to concerns around talent. “What I’m seeing is that finance organizations, and many times more broadly throughout an enterprise, there are not enough people with the skills to actually use all these new tools. It’s a combination of picking new, better, more productive technologies, but also in some ways reconfiguring elements of the workforce so that you have a workforce and a talent pool that can use these things effectively. That is what will be happening over the next couple of years.”
Another challenge for CFOs will be prioritization. “Companies will never be able to afford everything that might be wanted. So there are real capital allocation decisions here that have to be made. What that requires is for CFOs today to get educated about stuff that they really didn’t have to in the past.”•