CFO Sentiment: Balancing confidence and caution
Conditions remain challenging, but Australian CFOs clearly sense we’re switching to a recovery phase.
At its final meeting of 2024, the RBA Board decided to keep the cash rate target steady at 4.35%. Although headline inflation has significantly declined from its 2022 peak, underlying inflation remains at 3.5%, still just above the 2-3% inflation target range.
So challenging economic conditions remain, but Deloitte’s latest CFO Sentiment shows that business opinion for the next 12 months is much stronger than the economic conditions we see in the rear view mirror.
Six months ago, our mid-year survey of Australian CFOs showed a rise in business optimism for the first time in three years. Now, our latest survey reveals CFO sentiment has continued to recover over the second half of 2024. Net optimism about business prospects over the next 12 months has increased to 65%, up 9 percentage points from H1 2024. This shows Australian finance leaders are looking ahead and feeling quietly confident their financial prospects will improve, not weaken.
Net optimism about the economy has also increased by 12 percentage points, reaching its first positive reading (5%) since we first measured it in late 2022.
However, while these results are encouraging, CFOs aren’t out of the woods yet. Risk appetite remains historically low, with just over one in four CFOs (26%) believing that now is a good time to take on risk. And although net sentiment about the economy has improved, most CFOs feel neutral about Australia’s economic prospects (68%) and few are explicitly optimistic (18%).
It is a feature of the current environment that CFOs’ confidence continues to grow despite lingering uncertainty. They have become more resilient after weathering the ups and downs of the past three years and are better equipped than ever to face the ‘new normal’ of high uncertainty, with most having embedded greater flexibility into their businesses.
Chart 1: Optimism about own business and the Australian economy (compared to 6 months ago)
Source: Deloitte CFO Sentiment Survey
This survey marks a notable shift in CFOs’ top risks for the year ahead. Economic risks have slipped down the rankings with 45% of CFOs identifying an Australian economic downturn as a significant risk to their business, down from 70% six months ago. This reshuffle aligns with CFOs’ improving sentiment towards business prospects, particularly as more CFOs become less pessimistic about the economic outlook. Focus is shifting inward, with inability to execute strategies (56%) and securing and retaining key talent (53%) now top of mind.
CFOs are increasingly bullish about the transformative impact of GenAI and are hopeful it can help bring operating costs down. Nearly half (47%) of CFOs reported that GenAI is already substantially transforming their finance function or will do so within the next two years, up sharply from 33% just six months ago. Despite the shift in expectations, the perceived impact of GenAI is yet to translate into adoption. Just 30% of CFOs have adopted GenAI in their finance function with many still struggling to find practical use cases to help guide their investment decisions.
As mandatory Environmental, Social and Governance (ESG) reporting requirements phase in from early 2025, CFOs are moving from planning to progressing ESG actions. Only 23% of CFOs say their organisation is primarily focused on basic compliance with minimal cost. As capabilities evolve, more businesses are expected to use mandatory ESG reporting to support strategic decision making.
This newsletter was distributed on 12th December 2024. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Daniel Kelly, Graduate at Deloitte Access Economics
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