According to a recent Deloitte survey, Australia’s weak economic outlook continues to weigh on corporate CFO sentiment, but could improve over 2024 as conditions stabilise, supported by strong population growth and easing inflation.
The survey noted that only 10% of CFOs feel optimistic about the Australian economy going forward. While this sentiment is similar to how they were feeling six months ago, pessimism is now seeping into expectations about CFO’s own business performance.
Key findings from the survey:
- 50% of CFOs remain optimistic about their company’s financial performance, down from 72% six months ago – and 21% are now pessimistic;
- 85% of CFOs rate uncertainty as higher than normal, down from 92%;
- Only 24% think now is a good time to take on risk – up on the 20% six months ago, but still down compared to the end of 2021;
- CFOs still expect business spending and hiring to increase in FY24, although around 25% now expect this to decrease in the next 12 months, compared to around 8% six months ago; and
- 75% report cost-control as a top focus area.
Commenting on the report, Deloitte CFO Program leader, Stephen Gustafson, said: “When last surveyed six months ago, CFOs appeared to be in two minds – optimism around business performance was holding, but confidence about the economy was already low.
“Since then, the resilience in business confidence we saw at the end of 2022 has fallen away in response to the more challenging economic environment. The divide between company sentiment, which had been holding up, and economic sentiment, is now closing.
“Positively, optimists still outnumber pessimists, but net optimism on business performance has fallen to 29%, compared to 66% six months ago, a lower rate than we saw at the start of the pandemic.
“Against this backdrop of a stuttering economy, it should be no surprise that CFO uncertainty is elevated, and risk appetite is low. However, CFOs are also no longer strangers to higher levels of uncertainty, which is high but no longer unfamiliar, nor even at peak uncertainty levels.
“This comes as CFOs have spent over three years grappling with volatile economic conditions – from suddenly entering a pandemic, to the rapid recovery after it, and then to an entirely new environment of high inflation and rising interest rates.
“The outlook for many key business metrics also still remains in positive territory. On balance, CFOs still expect capital expenditure, employment and revenue to increase in FY24, although expectations have weakened somewhat, and they are turning their attention to cost-control as a top-priority to manage any bottom-line impacts.
“On the business-risk ledger, securing and retaining key talent remains the number-one risk to CFOs for the fifth survey in a row. The labour market remains tight which continues to create challenges for businesses who face a difficult trade-off between attracting and retaining talent and controlling cost-growth.”
Deloitte Access Economics partner, David Rumbens, added: “It’s been a challenging start to 2023, with Australia’s strong post-COVID economic rebound in 2022 firmly in the rear-view mirror.
“The foreshadowed economic downturn from interest-rate rises and mounting cost pressures is here and starting to impact businesses and, by extension, what is a usually confident CFO community.
“Navigating a soft landing is already proving to be a challenging task for the RBA but, on the upside, a strong rebound in population growth is supporting the economy through this difficult time.
“One-in-four CFOs expect capex to decrease over the next 12 months, while 35% still expect it to increase, down from 45% at the end of 2022. These numbers are concerning as now more than ever Australia needs business investment to help boost productivity and economic growth.”
ESG and climate reporting
Gustafson noted that the report also looked at ESG considerations for CFOs as well as their climate priorities and challenges, adding: “ESG remains a dominant theme for business leaders with increasing pressure to adapt both from within business, as well as externally from public, investor and regulatory demands.
“Around 70% of CFOs feel somewhat prepared to tackle their ESG priorities, pointing to Australian businesses still in a period of transition on this front. And when asked about the impact of new mandatory climate-reporting requirements, 80% of CFOs pointed to these requirements having a moderate-to-high impact on financial reporting in the future.”
And looking ahead…
“We anticipate the results of our next survey in six months with intense interest, particularly in terms of what we hope will be a return to improved levels of CFO confidence,” Gustafson added. “On interest-rate expectations, CFO views have changed significantly compared to six months ago. This comes as the economic climate has worsened, and the RBA has taken an aggressive approach to managing inflation. Only 13% now believe rates will be higher in 12 months’ time, compared to 82% six months ago. Importantly, about 50% believe rates will be lower than at present.”