Geopolitical tensions, inflation dim CFOs' economic outlook: Deloitte

Dive Brief:

CFOs signaled diminished expectations for economic conditions in North America and Europe as well as their own business prospects in the face of looming geopolitical tensions and rising inflation, Deloitte found in a quarterly survey of Fortune 500 CFOs completed the day after Russia invaded Ukraine.
Just over one-third (36%) of CFOs expect the North American economy to have improved a year from now, down from 45% in the fourth quarter survey, while fewer CFOs (38%) believe their own company’s prospects will be better, compared to 49% in the previous survey.
"CFOs’ hesitation and drop in overall optimism for both the regional economies and their own companies is indicative of the current business environment and the challenges they’re up against, including talent retention, geopolitical tensions, the looming threat of inflation, and updates to federal policy and regulations that will affect their strategy," Steve Gallucci, the global and U.S. leader of Deloitte’s CFO Program, said in a statement.

Dive Insight:

CFOs are entering 2022 with lower expectations for the economy and their business prospects, according to the findings of the Deloitte survey. Inflation, geopolitical risks, and upcoming policies and regulation were cited as top external worries; others expressed concern over new variants of COVID-19 and ongoing supply chain issues.

In terms of internal risk concerns, retaining talent and labor, not just attracting new employees, remained a top concern for CFOs. Last quarter, CFOs ranked the challenge of attracting and retaining employees far above other internal risks for 2022, citing labor shortages and the difficulty of crafting a balance between remote and in-office work.

In the latest survey, CFOs expressed less optimism for the health of a range of regional economies looking 12 months ahead. Just 26% of CFOs expect the European economy to improve by next year, down from 40% in the previous quarter and only 33% of executives expect improvements in the Asian economy, excluding China, down from 37%. By contrast, CFOs’ outlooks on China brightened, with 31% of CFOs anticipating improvements, up from 28%.

In addition to overarching geopolitical risks and inflation, CFOs also cited policies and regulation as their top external worries. 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 as well. Together, these concerns might explain why less than half of CFOs, at 47%, said now is a good time to take on more risk, down from 57% in the prior quarter.

The executives’ company outlook was somewhat mixed. CFOs lowered their growth expectations for earnings, capital spending and wages for the year ahead. However, they raised their growth expectations for revenue to 9.1% from 7.8% in 4Q21, and for dividends, to 3.9% from 3.7%.

As for the investment in information technology, although CFOs on the whole are satisfied with their companies’ IT functions, they would still like to see improvements in areas such as speed, agility and innovation. CFOs estimated that the overall IT spend was 3.1% of companies’ annual revenue.