According to the Chinese zodiac, 2024 is the year of the dragon, a cloud-riding mythical force of power and benevolence.

For CFOs, though, there is nothing mythical — and no guaranteed good — from sweeping trends that will likely shape their business fortunes in the new year.

Financial executives will be better equipped to seize opportunities and overcome challenges when familiar with the following five forces shaping 2024:

1. Cooling inflation

CFOs step into 2024 amid signs that inflation —  the biggest threat to their planning and performance in recent years —  is in retreat.

The Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures price index excluding volatile food and energy prices, slowed to an annual rate of 3.2% in November from 4.2% in July.

Fed policymakers by the fourth quarter will likely win their most aggressive fight against price pressures in four decades by restoring inflation to their 2% target, according to economists at Moody’s Analytics and Goldman Sachs.

Slowing inflation is just one sign that the Fed may have engineered a “soft landing,” or curbed inflation by pushing up the main interest rate to a 22-year high without causing a recession or widespread unemployment.

The economy, defying 2023 predictions of recession, will probably downshift from 4.9% annualized growth in the third quarter to a still-healthy range between 1.5% to 1.7% in 2024, according to Moody’s.

Like economic growth, consumer spending is exceeding expectations and the labor market is healthy and cooling in line with Fed projections. Employers added 2.7 million jobs last year, less than in 2022 but more than before the pandemic.

Unemployment in December held steady at 3.7%, higher than the 3.4% level early last year, and will probably rise to a range between 4.1% to 4.2% by the end of 2024, Moody’s said.

While assessing sunny data, analysts keep an eye on risks that could dim the economic landscape.

“Inflation and Fed interest rate policy remains at the top of the list,” Cristian deRitis, deputy chief economist at Moody’s, said in an interview. Policymakers may hold borrowing costs high for too long, causing a downturn, or they may cut interest rates too early, unleashing renewed price pressures.

Several other threats cloud the outlook, deRitis said.

Like companies in every industry, owners of commercial real estate will need to refinance debt at the highest interest rates in decades while pressured by high vacancy rates, according to economists. Bankruptcy or mark-downs in property values could strain bank balance sheets.

Financial markets may need to come to terms with rising, unsustainable levels of federal debt. An increase in unemployment may crimp consumer spending, which fuels nearly 70% of economic growth.

Also, the Israel-Hamas war could spread, intensifying global tensions already high from Russia’s invasion of Ukraine and confrontation across the Taiwan Strait. Worsening conflict raises the odds of cyberattacks on vital targets such as U.S. financial institutions and infrastructure.

“There are certainly geopolitical threats out there,” deRitis said. “Those are things to be mindful of that could take the economy off track.”

2. M&A rebound?

The prospect of falling price pressures, declining borrowing costs and steady economic growth may spur mergers and acquisitions in 2024 after a year that, by some measures, recorded the biggest dealmaking slump in a decade, according to M&A experts.

The total value of M&A activity in the U.S. fell 24% through the first nine months of last year compared with the same period in 2022, Skadden, Arps, Slate, Meagher & Flom said last month, citing data from Refinitiv and other sources. The number of deals shrunk 4%.

M&A value and the total number of deals likely bottomed out during the second quarter of 2023, David Dean, managing director of M&A consulting at WTW, said in an interview. Dealmakers in recent months have especially focused on considering comparatively small deals that would reinforce a company’s growth strategy.

“Those are the green shoots that we see compared to a year ago,” Dean said. When determining deal valuations, “people are really trying to hit what I would say is the Goldilocks-perfect spot.”

In addition to tailwinds from the economy, M&A may increase on the C-suite’s “pent-up interest” in growing through acquisitions or joint ventures without increasing a company’s risk profile, according to Dean.

The need by many companies this year to roll-over debt at much higher interest rates could prompt some to seek tie-ups, he said. Others with weak balance sheets may become targets for acquisition.

The unexpected surge in equity prices — with the Standard & Poor’s 500 index rising 24% in 2023 — may also spur deals, he said.

“A strong stock market is helpful for acquirers and also sellers,” Dean said. “It makes it easier to combine if they’re both feeling like they have strong combinations.”

3. AI’s year of reckoning

The S&P 500 index soared unexpectedly last year in part because of euphoria over potential gains in productivity and innovation from generative AI. Microsoft, Nvidia, Google and other large companies led the boom on prospects of vast AI profits.

Skepticism in the new year will sweep away some of the AI hype, according to AI experts and executives.

“This is the year where people are now beginning to say, ‘Show me the money,’” Aible CEO Arijit Sengupta said in an interview.

“If you hear someone say AI is magic, shut down their budget,” he said. “New vendors and internal stakeholders — if they approach it as magic, they will mess it up, and it’s going to hurt your company.”

The technology is pervasive. Nearly three out of four U.S. companies (73%) have adopted AI, with generative AI “leading the way” at 54% of the firms, PwC found in a survey last year of 1,026 U.S. executives at companies with at least $500 million in revenue.

The market for generative AI will explode to $1.3 trillion by 2032 from an estimate $137 billion this year, according to Bloomberg Intelligence.

CFOs in 2024 should weave generative AI deeply and broadly throughout their companies, Sengupta said, fully leveraging the “democratizing” power of the technology. “Get as many people hands-on with the technology as quickly as possible,” he said.

Most Aible customers have shifted from a launch cadence of one to three generative AI projects per month to 100 projects, he said.

CFOs should use generative AI to overhaul order-to-cash systems and other processes, and to yield fresh insights by breaking down silos between marketing, sales, finance and other functions, Sengupta said. Aible provides cloud-based AI software.

In light of the accelerating pace of AI’s advancement, CFOs have no time to lose, he said. “Speed is key here.”

4. Cybersecurity crackdown

For years, CFOs have had to scramble to adequately budget for defenses against ransomware and other cyberattacks — often in a costly, rearguard effort.

In 2024, in the face of new Securities and Exchange Commission rules, many CFOs also need to rush funding for cybersecurity compliance.

The SEC as of last month requires companies to disclose in annual 10-Ks how they manage cyber risk, including defenses, board cybersecurity oversight and assessment of potential and actual attacks. Companies must also detail a cyberattack within four days after finding that it will cause a material loss.

CFOs should expect the SEC to be especially vigilant in coming months, according to Scott Lesmes at Morrison Foerster. “Enforcement in this area is becoming more and more frequent,” he said, adding that CFOs should consider ways to stay on the agency’s good side.

First, “it’s controls, controls, controls,” Lesmes said in an interview. CFOs should put in place a detailed process for: identifying cyberattacks early; focusing on the highest-risk incidents; rallying in-house attorneys; and informing the CEO and board about the most threatening strikes.

After an attack, CFOs should describe it not as hypothetical but as an actual occurrence, Lesmes said. “It seems like a minor point, but it’s something that the SEC is very focused on.”

5. Climate risk disclosure

The SEC this quarter will probably release the final version of a climate risk regulation, according to attorneys specializing in securities regulation and corporate adherence to environmental, social and governance standards.

Since releasing the proposed rule in March 2022, the SEC has pored over a record 14,000 public comment letters while revising requirements that publicly traded companies disclose data on carbon emissions, the risks from climate change and their strategies for minimizing such risks.

The SEC has drawn the most fire for a mandate that companies detail their so-called Scope 3 greenhouse gas emissions across their supply chains, from upstream vendors to downstream customers.

“That will probably be adjusted, and I think that would be beneficial for the SEC given the amount of time that’s elapsed from the proposal rule and the number of comments from various stakeholders,” Dave Brown at Alston & Bird said in an interview.

The rule will almost certainly trigger litigation focussed on its high cost and a claim that the SEC has overstepped its congressionally mandated authority, Brown said.

Critics such as the U.S. Chamber of Commerce have said that the SEC has underestimated the cost of compliance. For example, the agency projected an average hourly compliance consulting fee at $600 when a more realistic figure is likely $800, Brown said.

Compliance fees may surge after release of the final rule triggers demand for climate risk expertise.

“CFOs have been monitoring and starting to do things, but not knowing how this will come out,” Brown said, noting that recession forecasts have prompted budget austerity. After the release of the rule, however, “you’ll see a hockey stick type” of surge in spending on climate risk disclosure.

The SEC probably aims to release the final rule soon and resolve litigation before its critics possibly gain leverage in the November elections, Brown said. “It’s in the SEC’s interest to put the final rule out and start the clock” on any opposition in court.

CFOs should steadily build their companies’ climate risk compliance program, including risk measurement and overall controls, Brown said. “I wouldn’t run around with your hair on fire unless you’re trying to get an increase in your budget.”

Ensuring accuracy on data such as carbon emissions is also vital, he said. The measurements would be subject to audit under the SEC rule.

Also, “make sure that you’re not doing this in a siloed way, you’re understanding how it impacts your overall strategy, how it impacts your overall business and you can tie it to the bottom line,” Brown said. “That’s really what investors are looking for.”