Household debt crisis significant threat to economic growth - Deloitte CFO Survey

CFOs of major Irish companies believe that the household debt crisis poses a significant threat to the overall economy. 97% of respondents identified this as a concern in the Deloitte Q3 2011 CFO Survey. Half of respondents also believe that the Government needs to put in place a programme to support homeowners.

Amidst the international economic turmoil concerning the future of the euro during the quarter, the majority of CFOs (70%) do not believe that a break-up of the Eurozone is likely, although one in ten consider it a distinct possibility. However, 77% of respondents believe that if Ireland was to withdraw from the Eurozone, it would have a negative impact on their business.

In advance of Budget 2012, the survey provides an overview on how CFOs believe the Government is delivering on its Programme for Government. 

The key areas where CFOs perceive the programme is having a positive impact are restoring fiscal policy – 66% of respondents believe the Government is having a positive impact in this area, an increase of 24% on last quarter. 

43% believe there has been a positive impact in the area of foreign direct investment, and unsurprisingly given the proposed interest rate cut announced in September, over three quarters of respondents believe that the Government has had a positive impact in the renegotiation of the EU/IMF bailout package.

However, there has been a fall of 9% to 29% in the number of CFOs who believe the coalition Government is making positive strides in political reform; a fall of 12% to 17% in those who believe there has been a positive impact in the area of employment and job creation; and a fall of 14% to 2% in the area of credit availability to small business. Just 5% of respondents believe there has been a positive impact with regards to the cost of credit.

These are some of the findings of the latest Deloitte CFO Quarterly Survey, the ninth survey in the series, which seeks to provide a barometer of business trends and economic outlook among publicly quoted companies, large private companies, and Irish subsidiaries of multinational companies.

Commenting on the findings, Alan Flanagan, Partner, Deloitte commented: 

“Irish CFOs are firmly of the opinion that household debt will act as a drag on economic growth for years to come, and will impact on the future growth plans of their businesses. However, there are different views on how this should be dealt with amongst respondents – while half of respondents think the Government should deal with it as a matter of urgency, others believe responsibility should be left to the financial institutions, and that support should relate to extension of debt and not debt forgiveness.  It is clear CFOs see this as having a significant drain on their business and is a problem that needs a resolution.

“The survey findings also suggest that CFOs see progress being made in a number of critical areas to their business and there is a sense that the Government is having a positive impact on getting Ireland’s house in order. Yet, with credit and employment being identified as areas for improvement, all eyes now turn to Budget 2012 and how the measures announced will deal with these issues, and the impact they will have on consumer demand. This will be of particular importance for Irish CFOs.”

In light of developments in the global economy, this quarter’s survey results show that CFOs have reassessed slightly their predictions with regards to growth, both with regards to their own companies, in addition to the overall economy. While the numbers of CFOs (40%) who believe that their company has already or will return to growth by the end of the year remains consistent with last quarter (39%), there has been an 8% drop to 34% in the number of CFOs who indicated that profitability may decrease over the next six months. That said, the remaining two thirds believe that profitability will increase (39%) or remain the same (27%).

Once again, the results show that CFO confidence in their own companies outstrips their confidence in the economy. 82% of respondents believe that it will be the latter half of 2012 or start of 2013 before the Irish economy returns to growth. However, 10% do believe that is has already returned to growth, an increase of 8% on last quarter.

Interestingly, this quarter’s survey shows that the prospect of M&A has decreased on last quarter. Under a third of respondents would not consider an acquisition or merger in the next 12 months, down from a half of respondents in the previous quarter. The appetite for strategic alliances has increased, however, with the number of CFOs now considering this rising by 20%.

Market risk, when compared to financial, operational and strategic risk, remains the key worry among respondent CFOs. However, concerns in this area have fallen significantly after a sharp increase last year. 57% of respondents highlighted this as a key concern, compared with three quarters in Q2. Strategic risk has increased, rising by 9% to 20% in the number of CFOs who identified this as a concern.

Exchange rate sensitivities remain a priority for CFOs, however following increases in the previous three quarters, the net perception of exchange rate risk has stabilised somewhat,   falling 2% to 39%.  With regards to exchange rates, CFOs now expect both the US Dollar (48%) and the GB Sterling (53%) to strengthen against the Euro.

“This quarter’s findings suggest that Irish CFOs are continuing to make strides in their own companies amidst the economic turmoil. Confidence and growth predictions for their own businesses are relatively stable, which, with the continuing uncertainty in the global marketplace, is extremely positive. Yet, as long as any certainty in local and global markets remains elusive, long term strategic planning and forecasting will be troublesome. CFOs will be looking towards Budget 2012 to provide them with visibility on how 2012 might look like from an Irish standpoint,” concluded Flanagan.

About the survey

This is the ninth in a series of quarterly surveys by Deloitte of Chief Financial Officers of listed companies, large private companies and Irish subsidiaries of overseas multi-national companies.  The survey was conducted in September 2011.  

The Deloitte CFO Survey is the only survey that seeks to establish the views of CFOs in relation to relation to the financial markets, economic outlook and business trends

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/ie/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

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

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