CFOs suffer sharpest confidence dip since 2007

With the European debt crisis raging on, heads of finance in the UK are concerned that one or more countries will leave the euro currency this year.

by Michael Northcott
Last Updated: 19 Aug 2013

Investment decisions made by the nation’s CFOs are heavily influenced by global economic uncertainty, which has caused the third major decline in business confidence since 2007, according to the latest study. The Deloitte CFO Survey questioned 137 CFOs on what factors influence their investment decisions, and 80% said that the uncertainty of the economy means it is a ‘bad time’ to take risk onto the balance sheet. Whilst this will not come as a surprise to many, it is notable that this is the sharpest decline in business confidence since 2007. George Osborne, take note.

Despite all the government rhetoric about credit crunching and the lack of finance available from banks, this does not appear to be an issue for bigger companies (the survey questioned mainly FTSE 250 constituents). Only 4% of CFOs reported ‘access to and pricing of external finance’ as being of any influence on their decision-making. We don’t really think this lack of bother about finance can be representative of business as a whole however – large corporates are hoarding cash whilst SMEs are desperate to get hold of it…

More pressing in their minds is the stability of the euro: collectively CFOs saw a 36% probability that one or more countries would exit the single currency before the end of 2012, a threat that is having ‘direct impact on [their] confidence, behaviour and business strategies’. We’re not surprised: collapsing Spanish banks, electoral uncertainty in Greece and the threat of bailout requirements in Italy mean the eurozone has been on frighteningly shaky ground over the last few months. 

Confidence levels have been turbulent over the last 12 months according to the survey. CFOs were scared towards the end of last year as the crisis took root, they then enjoyed a bump in confidence in Q1 this year after the ECB injected a load of cash into European banks, and then in Q2 as leaders got stuck in stalemate over what to do next, confidence crashed again. It is worth noting that CFOs generally are supposed to be risk averse, protecting their company’s financial health. To this end you can expect some of them to have a ‘glass half empty’ view of things.

Unfortunately, it doesn’t look like that situation is likely to change any time soon. There is the occasional bit of good news – BMW pledged to invest £250m in British car manufacturing today – but on the whole, the picture remains unpleasant. With companies adopting long term defensive strategies and yet still no change in the debt crisis, we could be stuck in this mire for a long time…

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