CFO Sentiment: Economic reality kicks in

The latest edition of CFO Sentiment confirms that the foreshadowed economic downturn from interest rate rises and mounting cost pressures is here, and is starting to impact businesses.

Net optimism about company financial prospects has fallen from 66% six months ago to just 29%, lower than during the first wave of COVID-19. This comes as CFOs were already cautious about the economic outlook six months ago, which has been reaffirmed by further interest rate rises and weakening consumer spending in 2023. That said, and despite the difficult environment, there are still more CFO optimists than pessimists when it comes to their own business performance – a good sign during tricky times.

Against this backdrop of a stuttering economy, it should be no surprise that uncertainty is elevated and risk appetite is low. However, CFOs are no strangers to higher levels of uncertainty, which they have grappled with before.

Australian CFOs have spent over three years dealing with volatile economic conditions – from suddenly entering a pandemic, to the rapid recovery following it, and finally to a new business cycle of high inflation and rising interest rates.

Chart 1: Balance sheet risk and uncertainty about economic and financial conditions

Source: CFO Sentiment Edition 15.

Securing and retaining key talent remains the number one risk to CFOs for the fifth survey in a row – perhaps a surprising result given the weakening economic environment. However, the dominance of this risk is starting to give way as inflation and the risk of an Australian recession become more dominant concerns.

On the bright side, the outlook for many key business metrics remains in positive territory despite the economic outlook. On balance, CFOs still expect capital expenditure, employment, and revenue to increase in FY24, though expectations have weakened in the last six months. Hiring and business spending have shifted significantly: about 25% of CFOs believe both capital expenditure and employment in their business will decrease over the next twelve months, compared to only 8% six months earlier.

It's no surprise then that cost control is the top priority for CFOs over the next year, as focus shifts towards financial discipline relative to growth initiatives. However, it’s reassuring to see productivity improvement as the second biggest priority – something sorely needed by Australia over the next year.

This is especially the case as 2024 shapes up to be a better-performing year for the Australian economy than 2023 – meaning we could see CFO sentiment improving sooner rather than later.  

Read the full report, with analysis of ESG priorities and the role of the CFO, here. 

This blog was co-authored by Michelle Shi, Economist at Deloitte Access Economics.