In the spring 2024 survey, 36% of CFOs were optimistic about their company’s prospects. This represented a notable improvement from autumn 2023, when only 22% of CFOs felt optimistic, while 34% were pessimistic about their company’s outlook. However, our latest survey shows that Europe’s CFOs have not returned to their anxiety of a year ago, nor built further on their optimism of the spring. Instead, they appear to have a neutral outlook on their companies: 27% of CFOs are downbeat about their firms’ prospects, while 28% remain optimistic.

A constant trend across the last three surveys is telling: In each, around 45% of CFOs expected their firms’ prospects to remain broadly unchanged. Over the past year, most CFOs have retained a largely neutral outlook on their company’s prospects, seeing little room for robust growth yet no danger of steep decline. As usual, sentiment varies considerably between countries. Pessimism is strongest in Austria and Germany, where 38% and 35% of CFOs, respectively, are less optimistic than three months before. Austrian and German CFOs face pressures from the energy crisis, pronounced weakness in the industrial sector, compounded by geopolitical uncertainties and a persistent talent crunch. The situation is particularly acute for Germany. The country’s heavy reliance on exports – especially in the car manufacturing sector – faces significant headwinds.

China’s rapidly growing domestic car industry has reduced its dependence on imports from Germany. While the Inflation Reduction Act (IRA) has further dampened demand for German cars from the United States, the outlook is bleak, with little indication that German exports to China will recover or that the US stance will soften under the new administration. Media reports in recent weeks of plant closures have highlighted the struggles of major car manufacturers in Germany. These issues point to a dramatic rather than lukewarm situation, reinforcing Germany's mounting challenges and leading some to describe it as once again “the sick man of Europe”.

In contrast, optimism is strong in the United Kingdom, where 32% of CFOs in the region’s second-largest economy are more optimistic than the previous three months, and in Spain, 36% share this sentiment. Optimism is highest amongst CFOs in central and eastern European countries, with 50% of finance chiefs in Poland and Bulgaria and 49% in Bosnia and Herzegovina expressing confidence in their companies’ prospects. This upbeat optimism is likely driven by strong economic growth and access to EU funding, particularly for development and infrastructure programmes.

Macroeconomic trends are strongly reflected at the industry level. CFOs in financial services (41%) and business and professional services (40%) report the highest optimism about their companies' financial prospects. With the European Central Bank having cut key interest rates four times this year by a quarter of one percentage point, and the Bank of England twice, further reductions are widely expected – a prospect the financial sector views positively.

While cheaper money could benefit most sectors, the muted outlook for Europe’s economy is reflected in the significant proportion of CFOs in transport and logistics, life sciences and consumer goods (54% each) who report broadly unchanged sentiment about their company's prospects.

Interest rate cuts, meanwhile, are no comfort for car manufacturers. The sector remains the least optimistic, with 41% of CFOs feeling less hopeful than the preceding three months (figure 1). This pessimism stems from persistent supply chain disruptions, the ongoing transition to electric vehicles and weakening consumer demand for new cars.

Despite varying levels of optimism, CFOs remain confident that they can grow revenues: Some 58% expect an increase over the next year (figure 2), while only 21% anticipate a decline. This confidence extends even to Germany, where half of CFOs surveyed expect revenue growth. Optimism is particularly strong among CFOs in Bulgaria (88%), Sweden (74%), Bosnia and Herzegovina (72%) and Denmark (70%). Bulgaria’s positive outlook stems from EU-funded infrastructure projects, which are boosting economic activity. In Sweden, resilient economic growth fuels confidence, while in Bosnia and Herzegovina, a gradual recovery spurred by infrastructure investments supports revenue expectations. Denmark's improving export sector is a crucial contributor to the country’s positive outlook.

While European CFOs remain confident in revenue growth, their sentiment on operating margins is tempered by concerns about cost pressures and a challenging economic environment. Only 35% of CFOs expect margins to increase over the next 12 months, just slightly above the 30% who expect a decrease. This represents a small decline since spring, when 39% of CFOs anticipated rising margins.

Margins concerns are especially pronounced in Europe’s two largest economies: In Germany, 39% of CFOs foresee a decline, with a similar sentiment in the United Kingdom, where 37% feel the same. These concerns have led UK CFOs to prioritise defensive strategies including cost reduction, reducing leverage and increasing cash flow, reflecting a feeling that business costs are rising. Although the Bank of England has cut interest rates twice this year, yields on ten-year government bonds, which influence mortgages and corporate borrowing costs, have recently climbed above 4%. Companies in both countries may feel they cannot easily pass on increased costs to customers.

Even in Europe’s generally optimistic tourism and travel sector, confidence in margin growth has softened, with only 50% of CFOs expecting rising margins this autumn, down from 61% in the spring.

Given the rapid advance of generative AI, efforts to decarbonise the economy and digitalisation, substantial capital expenditure (CAPEX) spending might be expected. While CFOs in the energy, utilities, and mining sectors plan substantial CAPEX increases to support renewable energy infrastructure and modernise their operations, the broader survey indicates limited investment spending. A third (33%) of CFOs anticipate increased CAPEX, while 28% plan a decrease and 39% foresee no change.

In some parts of Europe, however, optimism is notably higher, with CFOs in Portugal (49%), Croatia (47%) and Spain (46%) expecting to increase CAPEX. EU funding is a significant driver here, particularly in Portugal and Spain, where digitalisation, green energy and infrastructure projects are attracting investment. Croatia's entry to the eurozone in January 2023 is also spurring investment and boosting business confidence, fuelling CAPEX growth. These regional trends are offset by the disappointing figures for the United Kingdom and Germany, where 40% and 33% of CFOs, respectively, expect to cut capital spending.

The automotive sector remains the least positive, with 52% of CFOs expecting CAPEX cuts. Slower-than-anticipated progress in electric vehicle adoption, combined with ongoing supply chain issues and rising material costs, weighs on automotive CAPEX.

Hiring intentions across Europe are slightly positive, except for Austria and Germany. On average, 30% of European CFOs report that their companies plan to hire more workers, compared with 27% who expect to cut payrolls. The remaining 42% intend to keep their workforce stable.

Hiring intentions are notably strong in Belgium, where 63% of CFOs plan to add staff, and in the Netherlands and Hungary, where 47% report similar intentions. Belgium’s investments in digitalisation, green energy and infrastructure drive job creation, while the Netherlands benefits from a thriving tech sector; in the meantime, Hungary's robust manufacturing base is driving employment growth. The business and professional sectors show the highest hiring demand, with 43% of firms planning to recruit, spurred by demand for specialised skills in cloud computing, cybersecurity and data analytics amid ongoing digital transformation efforts.

However, Germany remains a notable exception, as 37% of German CFOs say their companies plan staff reductions, although 32% still anticipate hiring. The picture is worse in neighbouring Austria, where 42% of CFOs expect job cuts and only 27% expect firms to add workers. Despite pessimistic hiring forecasts, both Germany and Austria are experiencing workforce challenges: Germany faces labour shortages due to an ageing population, while Austria grapples with an acute skills mismatch. Combined with other economic pressures, these labour market challenges make businesses hesitant to hire more employees.

European CFOs now expect an average inflation rate of 2.5% over the next 12 months, close to the European Central Bank’s 2% target and a significant drop from the 3.8% predicted a year ago. However, optimism about inflation has given way to concerns over broader uncertainties.

Over half (54%) of European CFOs now rate the level of external uncertainty as “high” or “very high”, an increase from 47% in the spring survey, though still lower than last year’s 61%. Historically, this level of uncertainty is not unusual: Since autumn 2018, at least 60% of CFOs have regularly reported high levels of uncertainty, with this year’s spring survey marking a rare exception.

Geopolitical issues are now paramount, with German CFOs particularly worried about potential trade barriers and the prospects for their manufacturing industries, alongside ongoing worries over the conflict between Ukraine and Russia and escalating tensions in the Middle East. CFOs in Switzerland (66%), Italy (61%), Austria (56%), Germany (46%) and Belgium (43%) are among those most likely to report "very high" levels of geopolitical uncertainty.

Reflecting this uncertainty, nearly three-quarters (70%) of European CFOs believe it is not a favourable time to take on more risk – a slight increase from 69% in spring. Risk aversion is highest in eastern Europe, with CFOs in Slovenia (88%), Romania (87%), Bulgaria (80%), Austria (79%) and Croatia (75%) particularly reluctant to increase risk exposure.

The shortage of skilled labour is identified as the top risk by Europe’s CFOs in 11 out of 18 countries. This challenge is driven by Europe's ageing population, which is shrinking the workforce and creating a gap in younger talent. Additionally, rapid advancements in fields such as artificial intelligence, data analytics and robotics are increasing the demand for workers with specialised skills.

Geopolitical risks and weaker domestic demand are also significant concerns, cited in nine out of 18 countries. Issues such as the Russia-Ukraine conflict, tensions in the Middle East and fears over protectionism, trade disruption and sluggish economic growth are keeping CFOs anxious.

Regulatory risk has emerged as a new and pressing concern, now ranked the third most significant in eight of the 18 countries. This signals a growing awareness of how regulatory changes could impact business operations, compliance costs and market access. For example, European sustainability and social responsibility regulations, planned and implemented, are cited as critical concerns by Swiss CFOs.

In line with the current climate of caution, CFOs in a resounding 14 out of 20 European countries have identified cost reduction as their top strategic priority for the coming year. This focus underscores the need to optimise operations and preserve profitability amidst ongoing political and economic uncertainty.

Organic growth through internal expansion and leveraging existing strengths is the second most important strategy, selected by CFOs in 12 out of 20 countries. This approach reflects a preference for sustainable growth by capitalising on current market opportunities rather than high-risk ventures.

Digitalisation and expansion within existing markets are the third most popular strategies highlighted by CFOs in 6 out of 20 countries. Digitalisation supports efficiency gains, streamlined operations and cost savings, while expanding in existing markets provides a safer growth path in uncertain times, allowing firms to rely on established customer bases and market knowledge for manageable, profitable growth.

Europe's CFOs face a delicate balancing act: sustaining positive revenue expectations while navigating a landscape of economic and geopolitical uncertainty. While the decline in inflation offers a glimmer of hope, the lingering effects of the energy crisis, persistent talent shortages and escalating geopolitical tensions demand a strategic response.

To navigate this terrain, European CFOs should:

• Embrace a pragmatic approach: This can be achieved by prioritising cost reduction and organic growth strategies, optimising operations and leveraging existing strengths. This approach can involve scrutinising spending across all departments, streamlining processes and exploring opportunities for operational efficiency. Pursuing organic growth through internal expansion allows for greater control and minimises risk in a volatile market.
• Invest strategically: Despite muted capital expenditure, targeted investments in digitalisation, green energy, and infrastructure projects, particularly those supported by EU funding, can unlock long-term growth. Strategic capital allocation should support Europe's green transition goals, digital transformation opportunities and EU-funded programmes that support sustainable infrastructure development.
• Stay ahead of the talent crunch: CFO should actively attract and retain skilled employees through proactive recruitment and talent development, particularly in critical sectors like technology and life sciences. Investing in upskilling and reskilling programmes for existing employees, competitive compensation and innovative recruitment strategies can help secure top talent in a tight labour market.
• Stay agile in regulatory compliance: Maintaining robust compliance systems and proactively managing regulatory risks could help companies adapt to evolving regulations. This includes monitoring regulatory changes closely, building strong compliance frameworks and establishing dedicated teams to navigate complex compliance requirements.

By embracing these strategies, European CFOs can position their companies for success, navigating the challenges of the coming year and seizing opportunities for sustainable growth in a dynamic and unpredictable global environment.