CFOs are taking action to insulate their businesses from the difficult economic climate.
Deloitte’s latest CFO Sentiment shows that CFOs are taking action to best position their business against economic headwinds.
The economic gloom is testing the natural positivity CFOs have about the prospects for their own businesses. Sentiment in the outlook for the broader economy is extremely weak at -31% (proportion of optimists less pessimists).
In this challenging economic climate, CFOs are prioritising core financial disciplines. 61% name cost control as a top priority for the year ahead. This focus is reflected in business spending intentions: 40% expect to reduce headcount over the next 12 months, up from 26% six months ago. Meanwhile, just 27% expect to increase capital expenditure over the next year.
CFOs now rank inflation and interest rate movements as the biggest risks to their business over the next 12 months. Both are external factors, showing Australia’s deteriorating economic outlook is weighing on their minds. 67% say inflation is among their biggest concerns, up from 51% six months ago. Those who selected interest rate movements also increased to 51%, up from 28%. This marks a major shift in risk perception with CFOs increasingly concerned inflation could persist longer than first thought. They are clearly wary of how this could affect interest rates and economic conditions moving forward.
Meanwhile, far fewer CFOs rank securing and retaining key talent among their top risks, a sign the labour market is cooling. This had topped CFO risk agendas for the last five surveys since mid-2020, but has now dropped to 46%, down from 71% six months ago.
Chart 1: Risks of most concern to CFOs over the next 12 months, internal and external.
Which of the following factors is likely to pose a significant risk to your business over the next 12 months?
With economic headwinds set to persist into the near future, CFOs are prioritising short-term financial discipline. In part due to actions they are taking, CFOs have much stronger confidence in the prospects of their own business than they have in the wider economy. While net optimism on the broader economy is at a low net -31%, net optimism about own business performance is at a much healthier +27%.
A key upside opportunity comes from the emergence of generative AI. Over half of CFOs surveyed (57%) believe it will transform their industry within the next five years. 95% of CFOs say efficiency is what they hope to leverage from the technology, showing its potential to break through the current productivity slump. But adoption is lagging, indicating firms may be underinvesting in this transformational technology.
Too much focus on the short term may be a cost to business. History suggests the businesses that invest and innovate during a crisis are the ones that emerge stronger.
This newsletter was distributed on 12th December 2023. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Madeleine Check, Vacationer at Deloitte Access Economics.
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