Dive Brief:
- CFOs' view of the global economy is darkening, but they nevertheless intend to pursue growth strategies over the next year, Deloitte's quarterly CFO survey found.
- CFOs' assessment of the North American economy fell sharply in the third quarter of this year, with 68% saying it's good, down from 79% last quarter, and only 15% saying it will improve next year, down from 24%. That last figure is well below the 59% at the beginning of the year that thought things in North America — the U.S., Canada and Mexico — would get better.
- The outlook for business in Europe and China is even gloomier — only 5% say the European economy will improve, and 11% say that of China.
Dive Insight:
Behind the pessimism is a fear the global economy is going to shrink. "The world increasingly appears to be on recession watch," said Ira Kalish, Deloitte's chief global economist.
Concerns over the escalating U.S. tariff threat toward China, political turmoil leading up to the 2020 national U.S. elections, the increasing likelihood of a no-deal Brexit, and the lack of progress on trade tiffs within North America and between the U.S. and Europe are also concerns.
Despite the ominous outlook, most companies have no intention of pulling back. "CFOs continue to report a focus on offense over defense," Deloitte said in the report.
Among the findings:
- 51% will focus on revenue growth, 22% on cost cutting.
- 48% will invest their cash in growth initiatives, 18% will return it to investors.
- 35% will focus growth on new offerings, 44% on existing ones. That 9 percentage-point difference illustrates CFOs' continued bias toward current offerings, a conservative approach. But the trend is reversing. The net difference was 15 percentage points last quarter.
- 22% will focus on new geographies, 62% on existing ones. The 40 percentage-point difference is the lowest since the first quarter of 2017, meaning more CFOs are willing to take strategic risks.
Meanwhile, revenue growth is up, from 3.8% to 4.3%, although earnings growth declined from 6.1% to 5.6%.
The findings track what the Association for Financial Professionals' quarterly cash survey shows, said Jeff Glenzer, AFP's EVP and chief operating and finance officer.
"What CFOs appear to be saying is, 'If I've got that cash — and I do, because cash flows are strong — I'm certainly looking for growth opportunities,'" said Glenzer. "'I'm not building defensive positions because everything seems horrible.'"
Glenzer said many of the broader clouds companies face, including the tariff back-and-forth between the U.S. and China and Brexit, can be resolved with policy changes.
"These are things that, at least in theory, could be resolved very quickly," he said. "They're not macroeconomic conditions that are difficult to change in the short term; they're really issue- or policy-based courses of uncertainty, so I think it's a very prudent response for those who are making decisions about what to do with their cash."
Companies will still have to overcome internal issues, though. In the Deloitte survey, CFOs say they're concerned about their ability to get and retain the talent they need to adapt and innovate in the year ahead.
"When it comes to internal risks, CFOs ... expressed very strong talent concerns," the report said. Information security and pressure to keep innovating are other concerns that, taken together, have contributed to a decrease in what Deloitte calls own-company prospects. Those prospects, after hitting a peak in the beginning of last year, have declined and are now at a net -5% for U.S. businesses, a seven-year low.
Consistent with that, 31% of U.S. CFOs said their own-company prospects have declined. Only 21% said that last quarter.
