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Economic outlook & predictions for 2023 from Central Europe’s CFOs

Since 2010 the Deloitte Central Europe CFO survey has enabled the opinions of more than 600 of the region’s Chief Financial Officers to be heard, providing an overview of their plans and concerns, the key threats and priorities they identify, their attitude to risk and the factors they currently consider vital for Success.

We provide a detailed overview of CFOs’ financial outlook, alongside their views on the factors they believe will do most to influence their companies’ performance. These range from inflationary pressures and other critical business risks to the strategic priorities and funding considerations that most occupy their thoughts at this challenging time.

Economic Outlook

 

  • This year’s survey reveals that the invasion of Ukraine has delivered a sharp shock to business sentiment, which had previously been recovering as lockdown measures from the Covid-19 pandemic were lifted. CFOs now report a record level of risk, stemming from factors including geopolitical issues, supply chain disruption and inflation.
  • The average levels of GDP growth CFOs expect for 2023 is 0.33%, compared to 2.3% in 2022 and 0.25% in 2021.
  • CFOs from different industries have different perspectives on likely GDP growth in 2023. While all sectors recorded a negative net balance, Business & Professional Services (-86%) and Technology, Media, Telecommunication (-73%) had the most pessimistic expectations
  • In 2022, the anticipated economic recovery from the Covid-19 pandemic led to optimistic predictions in the year ahead. By way of contrast, in 2023 more CFOs are predicting that the level of unemployment will rise (up from 33% in 2022 to 68% in 2023).
  • The inflation expectations of CFOs have surged since the 2022 edition of this survey – from 5.5% to 11.5% in 2023. This is also the case in all participating countries. The expected average inflation rate for the Eurozone in 12 months’ time increased considerably, from 4.4% in the 2022 survey to 10.2% in this edition. CFOs are expecting price pressures to remain high.

Business Outlook

 

  • Overall, the net balance of CFOs who feel the level of financial and economic uncertainty is high has increased slightly, from -43% to -55%.
  • CFOs from across Central Europe expect considerable further cost increase across all categories in 2023, meaning an overall negative net balance across all types of cost. An overwhelming 93% of respondents expect workforce costs to increase in 2023, little changed from the 95% we reported in 2022.
  • CFOs regard reduced domestic demand (45%), geopolitical risk (45%) and a shortage of skilled professionals (42%) as the main sources of anxiety for businesses across the CE region in 2023.
  • Although the impact of Covid-19 is decreasing, the Russia-Ukraine conflict and its associated implications such as rising inflation and related concerns about international stability and supply-chain fragility are weighing heavily on the economic outlook. The conflict ranks as the third highest risk in 2023 (selected by 38% of respondents).
  • At 61%, the level of financial and economic uncertainty recorded in the 2023 Deloitte Central Europe CFO Survey is at its highest since the 2015 edition. Given this extremely high uncertainty, the majority (83%) of respondents do not feel this is a good time to take greater risk on to their balance sheets.
  • In the three surveys between 2020 to 2022, CFOs saw internal financing and bank loans as the most attractive sources of funding for their companies. In their predictions for 2023, equity (30%) has overtaken bank borrowing (25%), while internal financing (54%) remains the most attractive form of funding.

Company Growth Outlook

 

  • After predictions of economic recovery for 2022, driven by the gradual easing of lockdown measures, CFOs have become more pessimistic about the financial prospects for their companies in 2023. This can be attributed to the fact that high inflation, lower growth and tight monetary policy are all making themselves felt.
  • Overall, the net balance for financial prospects declined from 15% in late 2021 to -17% in late 2022 (when the current survey was conducted).
  • The net balance of expectations relating to operating margins has declined sharply,from 4% in 2022 to -17% for 2023– the lowest level since the survey began more than 10 years ago. This figure even undercuts the lows seen during the COVID-19 pandemic.
  • With rising interest rates and squeezed operating margins, expectations for CAPEX investments in 2023 have mostly been somewhat less optimistic than in 2022.
  • When it comes to employment, the net balance of expectations for hiring employees has declined from 27% in 2022 to 10% in 2023. However, half of the CFOs across the Central European countries we surveyed say the levels of employment in their companies will not change.
  • Participating CFOs believe that successfully developing their companies and maintaining control over their liabilities will improve their organisations’ ability to service debt during the next three years. They remain unwaveringly optimistic in this regard – more than half the respondents (56%) expect no change in their debt-servicing capabilities.
  • Many CFOs across all countries are planning to continue expansionary strategies, such as organic growth, growth in existing markets and digitalisation. Cost reduction is the top priority for only 9% of CFOs, confirming there is no distinct trend towards more defensive strategies in Central Europe.
  • The next 12 months are unlikely to bring significant changes to companies’ gearing levels. Just like in 2022, half of the respondents expect no change in this area.

Since 2010 the Deloitte Central Europe CFO survey has enabled the opinions of more than 600 of the region’s Chief Financial Officers to be heard, providing an overview of their plans and concerns, the key threats and priorities they identify, their attitude to risk and the factors they currently consider vital for Success.

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