Dive Brief:

• Just over one in three (35%) of CFOs think now is a good time to take on greater risk, down from nearly half of CFOs (47%) in the first quarter, marking the second lowest level of risk appetite since Deloitte began measuring it in 2015. The low (26.92%) was hit in the second quarter of 2020 when COVID-19 concerns gripped companies early in the pandemic, according to a quarterly Deloitte survey.
• Steve Gallucci, Deloitte’s global and U.S. CFO Program leader, said in an interview that the pullback from risk is in line with the increasingly dour economic outlook held by many of the survey respondents. “The more variables we enter into the equation, [the more] CFOs tend to be a little more risk averse. This really speaks to the general concern about the economic situation, certainly geopolitically, certainly from an inflation perspective,” he said.
• Finance chiefs in technology, financial services, and manufacturing indicated they were the least inclined to take on more risk while those in the retail/wholesale, energy/resources, and services sectors were more open to it.

Dive Insight:

The decline in risk appetite shown by Deloitte’s second quarter CFO Signals survey of Fortune 500 finance chiefs comes as executives have been wrestling with how best to adjust their strategies given the steady drumbeat of jolting economic news. 

Most recently a May Consumer Price Index report showing inflation rising at a 40-year record high rate of 8.6% was followed by the Federal Reserve’s move last week to raise the main interest rate more than at any time since 1994.  

Deloitte conducted the survey between May 2 and 16, and respondents included 97 CFOs in U.S., Canada, and Mexico. They hailed largely from firms with more than $1 billion in annual revenue. 

CFO optimism has been on the wane for several consecutive quarters, Gallucci said. “I think it coincides with the second or third wave of COVID-19 and some of the inflationary pressures that are really starting to manifest themselves,” he said.

The finance executives’ outlooks on regional economics prospects for growth dimmed considerably, with only 18% of respondents indicating that expect North America’s economy to be better in a year, down from 36% in the fourth quarter, while only 7% expect Europe’s economy to improve, down from 26%. The portion of those expecting an improved economy in China slid to 19% from 31%. 

CFOs’ outlooks for their own companies’ financial prospects also soured some with just 27% feeling more optimistic, down from 38% who were more optimistic about the future in the previous quarter, the study found. CFOs also lowered their year-over-year growth expectations for revenue, earnings and capital spending, according to the study.

As has been the case in recent quarters, CFOs continued to cite talent and retention as their most worrisome internal concerns. They cited inflation, broader economic concerns and geopolitics as the most concerning external risks facing them.