A lot can change in one quarter. CFOs have not only had to manage the challenges of recovering from the pandemic and supply chain disruptions, but also prepare their organizations for rising inflation, increased interest rates, shrinking talent pools and the continued fallout from the Russia-Ukraine war.
Add to that the impacts of climate change. So it comes as no surprise that CFOs’ views of regional economies one year out have taken a downturn. Only 18% indicate they expect North America’s economy to be better a year from now, down from 36% in the prior quarter, according to Deloitte’s Q2 Signals Survey of Fortune 500 CFOs.
“Finance chiefs’ assessments of their own company’s financial prospects and year-over-year growth expectations for key metrics have overall dimmed,’’ said Steve Gallucci, national managing partner of the U.S. CFO program at Deloitte. “Fewer CFOs are feeling more optimistic about their companies’ financial prospects, compared to three months ago, at 27% this quarter versus 38% in the first quarter. CFOs also are tempering their growth expectations for revenue, earnings, and capital spending, compared to the prior quarter.”
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In contrast, they expect slight increases in dividends and domestic wages/salaries, and project hiring to stay flat from the Q1 survey, Gallucci said.
In North America, 52% of CFOs rated the current economy as good or very good, a decline from 64% in the first quarter.
There was a significantly smaller percentage of CFOs who said they were inclined toward risk-taking, compared to the first quarter. Slightly more than one-third (35%) of CFOs said now is a good time to take on greater risks, down from 47% in Q1.
With ESG top of mind right now, CFOs were asked several questions related to their organizations’ decarbonization efforts and their role in them. CFOs appear to be actively engaged in those efforts. They expect to spend on average nearly 10 hours a month on such efforts next year, and they anticipate their finance organization to spend more than 109 hours on average per month on decarbonization issues.
CFOs also said that what their finance teams most need is clarity on methodologies and reporting standards, along with relevant data, to meet decarbonization-related requirements.
Increased operating and capital expenditures were singled out as the most significant costs they expect to incur to meet their organizations’ decarbonization goals. Transforming their organizations’ overall business model and value chain was cited as the next most significant area of costs.
CFOs in the following industries were most inclined toward risk-taking:
- Retail/wholesale (47%),
- Energy/resources (43%)
- Services (42%)
CFOs who said this is not a good time to be taking greater risks were primarily in these industries:
- Technology (78%)
- Financial services (75%)
- Manufacturing (70%)
Global optimism dropped steeply
The study found that only 7% of CFOs expect Europe’s economy to be better in 12 months, a steep drop from 26% in the first quarter of the year. They also expressed lower expectations for China’s economy looking a year ahead, with 19% expecting it to be better, compared to 31% in the prior quarter. Similarly, CFOs said they are more somber about the future of the Asian economy outside of China, and South America’s as well.
In contrast to the first quarter, CFOs’ sentiment toward the five economic regions covered in CFO Signals (North America, South America, Europe, China and Asia excluding China), soured on both current and future economic conditions.
CFOs’ assessments of the regional economies’ future conditions had already started to decline last quarter, and they have dropped even further across the board. Eighteen percent of CFOs said they expect North America’s economy to improve in 12 months—the lowest proportion since 3Q19, according to the report.
Top internal risks
Talent, retention and strategy execution are CFOs’ top internal risks, according to the study. Specifically, CFOs said they are concerned about getting the right talent to move tech investments forward.
Financial performance, transformation, supply chain issues, operational challenges and increased costs also appeared among CFOs’ most worrisome internal risks this quarter, as did raising capital against the backdrop of the Federal Reserve increasing interest rates.
CFOs cited inflation and broader economic concerns, along with geopolitics, as their most worrisome external risks. “With no clear end in sight for the Great Resignation, CFOs continue to experience significant challenges in recruiting and retaining talent,’’ the report said. “Concerns over wage inflation, employee morale, and return-to-work are adding to their worries.”
The Russia-Ukraine war and other geopolitical issues are also high on CFOs’ list of external risks.
Deloitte said a total of 97 CFOs participated: 72% from public companies and 28% from privately held companies. Respondents are from the U.S., Canada and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. The 2Q22 survey was open from May 2-16, 2022.