31 July 2024: The nation’s Chief Financial Officers (CFOs) are signalling the economy may be nearing a turning point, with their collective confidence lifting at its fastest rate since the end of the pandemic on rising expectations of revenue and profit growth.
The latest edition of Deloitte’s biannual CFO Sentiment survey, released today, shows net optimism among CFOs about the financial prospects of their companies has surged by 29 percentage points to 56% over the past six months – the first meaningful increase in optimism in three years.
Although the broader Australian economy is still afflicted by sticky inflation and low growth, the share of CFOs feeling pessimistic or highly pessimistic about the economy has fallen from 43% to 29% in just six months. However, most CFOs remain uncertain about where the Reserve Bank will take interest rates and are almost split down the middle as to whether the cash rate will be lower in a year’s time or not.
Deloitte partner and CFO Program leader Stephen Gustafson said the survey’s results show CFOs are getting better at dealing with economic uncertainty, prompting them to adjust their risk tolerance upwards.
“After two years of talent shortages, inflation, interest rate rises and difficult business decisions, the tide is starting to turn. More familiar than ever with tougher economic conditions, our CFOs are more resilient as a result,” he said.
“This familiarity with the economic environment has seen CFO optimism grow, with almost two thirds optimistic about the financial prospects for their companies compared to less than half six months ago. Similarly, only 10% are pessimistic now compared to 20% six months ago.
“This corresponds to rising business performance expectations, with 73% of CFOs expecting revenue to increase in the next year, compared to 60% six months ago.”
Deloitte Access Economics Partner David Rumbens said: “As Deloitte Access Economics has made clear, a return in business confidence is crucial to economic growth. Key upcoming economic data releases like the CPI and labour force data may influence the decisions of policymakers, as well as the sentiment of business leaders on the economy’s performance.
”This latest survey shows improving confidence among CFOs which signals a potential inflection point for business as they look ahead to recovery, rather than focusing on the current economic uncertainty.”
Other key insights from the survey (conducted throughout June 2024) include:
CFOs turn bullish on gen AI potential
CFOs are increasingly likely to see the potential inherent in gen AI, with with 78% expecting the technology to cause substantial industry transformation in the next one to five years, up from 57% six months ago.
Meanwhile, more than half of respondents say they have started to implement gen AI as a cost control measure, some 50% have already begun using AI to improve productivity, and a further 34% planning to do so.
There are significant steps to be taken before gen AI and other tools are fully leveraged by business. Establishing frameworks to control risks is an area of concern, with 54% of respondents implementing governance measures specifically designed for gen AI tools, and 41% appointing executives to oversee AI-related risks.
Elsewhere, two-thirds of CFOs are adapting their talent strategies in response to AI adoption. Most businesses are in the initial stages of evaluating changes to the expected supply and demand of skills (17%) and implementing upskilling and reskilling strategies (14%).
Gustafson said CFOs strongly believe in the promise of gen AI, but have a long way to go to realise its full benefits.
“Businesses still need to get the foundational elements right to make the most of innovative tools like gen AI, such as establishing governance measures to manage risks and by improving data quality across their organisations.
“The number of CFOs with no plans to implement AI has halved in the last six months, indicating a growing acceptance of the technology and a willingness to explore its potential benefits.”
And looking ahead…
Rumbens said that as economic conditions gradually improve, it is crucial for CFOs to prioritise innovation and growth to capitalise on emerging opportunities.
“As the broader economic landscape becomes clearer, it is crucial for CFOs to be strategically positioned to make the most of the recovery,” he said.
“This involves taking on greater risks and investing in productivity improvements, a strategy many CFOs are already adopting. While the immediate environment remains challenging, the outlook for the coming year is looking increasingly optimistic.”
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