27 July 2023: Australia’s weak economic outlook continues to weigh on corporate CFO sentiment, but could improve over 2024 as conditions stabilise, supported by strong population growth and easing inflation.
According to the latest edition of Deloitte’s biannual CFO Sentiment survey, only 10% of CFOs feel optimistic about the Australian economy going forward. While this is similar to how they were feeling six months ago, pessimism is now seeping into expectations about CFO’s own business performance.
Key findings (from the survey conducted in June) include:
Deloitte CFO Program leader, Stephen Gustafson, said: “When last surveyed just over six months ago, CFOs appeared to be in two minds. Optimism around business performanc was holding, but confidence about the economy was already low.
“Since then, the resilience in business confidence we saw at the end of 2022 has fallen away in response to the more challenging economic environment. The divide between company sentiment, which had been holding up, and economic sentiment, is now closing.
“Positively, optimists still outnumber pessimists, but net optimism on business performance has fallen to 29%, compared to 66% six months ago, a lower rate than we saw at the start of the pandemic.
“Against this backdrop of a stuttering economy, it should be no surprise that CFO uncertainty is elevated and risk appetite is low. However, CFOs are also no longer strangers to higher levels of uncertainty. Uncertainty is high but it’s no longer unfamiliar, nor even at peak uncertainty levels.
“This comes as CFOs have spent over three years grappling with volatile economic conditions – from suddenly entering a pandemic, to the rapid recovery after it, and then to an entirely new environment of high inflation and rising interest rates.
“The outlook for many key business metrics also still remains in positive territory. On balance, CFOs still expect capital expenditure, employment and revenue to increase in FY24, although expectations have weakened somewhat, and they are turning their attention to cost control as a top priority to manage any bottom line the impacts.
“On the business risk ledger, securing and retaining key talent remains the number one risk to CFOs for the fifth survey in a row. The labour market remains tight which continues to create challenges for businesses who face a difficult trade-off between attracting and retaining talent and controlling cost growth.”
Commenting on the economic outlook, Deloitte Access Economics partner, David Rumbens, said: “It’s been a challenging start to 2023, with Australia’s strong post-COVID economic rebound in 2022 firmly in the rear-view mirror.
“The foreshadowed economic downturn from interest rate rises and mounting cost pressures is here and starting to impact businesses and, by extension, what is a usually confident CFO community.
“Navigating a soft landing is already proving to be a challenging task for the RBA but, on the upside, a strong rebound in population growth is supporting the economy through this difficult time.
“About one in four CFOs expect capital expenditure over the next 12 months to decrease, while 35% still expect capex to increase, this is down from 45% at the end of 2022. These numbers are concerning as now more than ever Australia needs business investment to help boost productivity and economic growth.”
ESG and climate reporting
The survey report also again looks at ESG considerations for CFOs as well as their climate priorities and challenges.
“ESG remains a dominant theme for business leaders with increasing pressure to adapt both from within business, as well as externally from public, investor and regulatory demands,” Gustafson said.
“And when asked about the impact of new mandatory climate reporting requirements, 80% of CFOs pointed to these requirements having a moderate to high impact on financial reporting in the future.”
And looking ahead…
“We’ll again be anticipating the results of our next survey in six months with intense interest, particularly in terms of what we hope will be a return to improved levels of CFO confidence,” Gustafson said.
“On interest rate expectations, CFO views have changed significantly compared to six months ago. This comes as the economic climate has worsened, and the RBA has taken an aggressive approach to managing inflation.
“Only 13% now believe rates will be higher in 12 months’ time, compared to 82% six months ago. Importantly, about 50% believe rates will be lower than at present.”