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No return to business as usual

Deloitte Q2 2009 CFO Survey findings indicate long and sluggish recovery

  • Optimism about the financial prospects of the UK corporate sector jumps to the highest level in two years;
  • 73% of CFOs expect the UK economy to recover in 2010;
  • 59% do not expect an acceleration in demand for their own companies’ products and services for at least another 12 months;
  • Credit conditions have improved for the second consecutive quarter but remain tough and CFOs expect this to persist well into the recovery;
  • Corporates are likely to react to these conditions by reducing debt levels and cutting costs;
  • 85% expect unemployment to rise for at least a year into the recovery;
  • Equity is now seen as a more attractive form of finance than bank borrowing;
  • CFOs are bullish about mergers and acquisition activity.

Optimism amongst UK CFOs continues to strengthen, but with a large note of caution, according to the findings of the latest quarterly CFO Survey by Deloitte, the business advisory firm. While there is clear, though not universal, conviction among CFOs that the economy will recover during the next year, most expect the recovery to be marked by sluggish growth, a strong focus on cost control and tight lending conditions.

Although 73% of CFOs expect a recovery to unfold in 2010, a substantial minority, 23%, do not expect a return to growth until 2011 or even later.

Margaret Ewing, Deloitte partner and vice chairman, commented: “This is hardly a return to ‘business as usual’. It seems that optimism is returning, but nobody is getting carried away. While CFOs may believe the end of the recession is in sight, they are of the opinion that the business environment will remain very difficult during the first year of any recovery. As far as their own business is concerned, 59% see no revival in demand for at least another year.

“CFOs believe that conditions for UK corporates will remain tough even as the economy recovers. It will be a very different environment to the last years of the boom - CFOs don't see a return to the robust growth of late 2006 and early 2007. With CFOs assuming that growth will be weak and cost reduction a priority, it is unsurprising that 85% of CFOs think unemployment will continue to rise through at least the first year of recovery.”

While financial conditions have improved in recent months, one of the underlying causes of the crisis, excessive debt, remains. This explains the widespread expectation that a process of deleveraging lies ahead, particularly for financial institutions and households. 80% of CFOs expect deleveraging for corporates to continue throughout the recovery, with twice as many CFOs planning to reduce gearing in their own companies compared to those planning to increase it.

Despite a slight improvement in credit availability, bank borrowing is out of favour. CFO sentiment about issuing equity and corporate bonds hit its highest level since the CFO Survey began two years ago. Equity is seen as the most popular form of finance, and bank borrowing the least popular, a complete reversal of the situation in 2007 and 2008.

Ian Stewart, chief economist at Deloitte, commented: “The end of the credit boom has caused a big shift in the way in which corporates plan to finance their businesses. CFOs are increasingly looking towards equity and bond markets for finance. The dominant view among CFOs is that corporate balance sheets are overleveraged and half of the CFOs surveyed expect to reduce gearing in their own companies over the next year. The strong message from this survey is that CFOs think debt reduction has further to run.

“However, CFOs have become increasingly bullish about M&A activity, with 83% expecting M&A activity to rise over the next year. Sentiment on private equity activity has also turned positive for the first time in 2 years. A more positive view on M&A seems to reflect an improved economic outlook, depressed asset valuations, and a better financing environment”

Margaret Ewing concluded: “Whilst the signs of possible recovery remain fragile, it is great to see CFOs feeling more optimistic and starting to look to the future, rather than focusing solely on survival. There will be winners in these challenging markets, and I expect it to be those who positively position themselves now who will emerge from this recession ahead of the pack.”

“Winning businesses will be distinguished by those willing to take bold action and capture opportunities. Recessions create real opportunities for those prepared to be proactive and decisive while keeping an intelligent focus on operational imperatives such as costs.”


Notes to editors:

About the Deloitte CFO Survey
This is the eighth quarterly Deloitte Survey of Chief Financial Officers and Group Finance Directors of major UK companies. The Deloitte CFO Survey  is the only survey of major corporate users of capital which gauges attitudes to valuations, risk and financing. The 2009 second quarter Survey took place between 12 and 26 June. 117 CFOs participated including CFOs of 29 FTSE 100 and 39 FTSE 250 companies. The rest were CFOs of other FTSE companies, large private companies and UK subsidiaries of major companies listed overseas. The combined market value of the 83 UK listed companies surveyed is £396 billion, or approximately 30% of the entire quoted UK equity market.

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, whose member firms are legally separate and independent entities. Please see\about for a detailed description of the legal structure of DTT and its member firms.

The information contained in this press release is correct at the time of going to press.

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