CFO Economic Outlook Worsens Amid Market Turmoil and Geopolitical Tension: Deloitte CFO Signals™ Survey 2Q 2022
Special Section on Finance Executive Approach to Decarbonization
NEW YORK, June 16, 2022 /PRNewswire/ --
Key Takeaways
- Fifty-two percent of CFOs view the current North American economy as good, a decrease from 64% in Q1. CFOs lowered their assessments of other regional economies as well.
- Just 18% of CFOs expect the North American economy to be better a year from now, a drop from 36% last quarter, and their outlook for other regional economies also dimmed.
- Forty-three percent of CFOs consider U.S. markets as overvalued, compared to 72% in 1Q22.
- Thirty-two percent of CFOs view debt financing as attractive, down significantly from 85% last quarter.
- Twenty-seven percent of CFOs indicate that their organizations will reach net-zero carbon emissions by 2030.
- CFOs expect to incur the most significant costs related to their organizations' decarbonization goals in increased operating and capital expenditures, and in transforming their organizations' overall business model and value chain.
Why it matters to CFOs?
Each quarter, CFO Signals™ tracks the thinking and actions of leading CFOs representing North America's largest and most influential companies. Since 2010, the survey has provided key insights into the business environment, company priorities and expectations, finance priorities, and CFOs' personal priorities. Participating CFOs represent diversified, large companies, with the vast majority reporting revenue in excess of $1 billion. Nearly one-quarter are from companies with greater than $10 billion in annual revenue.
Economic outlook
Fifty-two percent of CFOs view the current North American economy as good or very good, a decline from 64% in Q1. Meanwhile, 9% and 12% of CFOs consider current economic conditions in Europe and China as good or very good, down from 31% and 29%, respectively.
Looking a year out 18% of finance leaders indicate that conditions in North America will improve, a drop from 36% last quarter. The downward trend in CFOs' assessments continued for other regional economies. Just 7% of CFOs believe Europe's economy will be better in a year, down from 26% in 1Q22, and 19% expect China's economy to improve, compared to 31% in the prior quarter.
Key operating metrics
The number of CFOs who viewed their own company's prospects as being better compared to the three months before the survey declined to 27% from 38% in Q1. Expectations for earnings growth decreased to 8.4% from 9.2% in Q1. Revenue growth expectations also dipped, to 7.8% from 9.1%. Capital investment growth expectations decreased to 11.2% from 11.3%, while expectations for domestic hiring remained flat at 5.3%.
However, CFOs did raise their growth expectations for dividends and domestic wages. Expectations for dividends rose slightly to 4% from 3.9% in the first quarter of 2022, while domestic wage expectations increased slightly to 5.3% from 5%.
Regarding risk-taking, just over one-third (35%) of CFOs indicate that now is a good time to take greater risks, down from 47% in Q1.
View of capital markets
Amid a tumultuous period for public equities, a smaller proportion (43%) of CFOs consider U.S. equity markets to be overvalued, compared to 72% in Q1. Additionally, just 32% percent of CFOs considered debt financing attractive, a significant drop from last quarter's 85%. Twenty-two percent of CFOs regard equity financing as attractive, compared to 37% in 1Q22.
Persistent concerns over the economy and talent
Externally, CFOs indicated that macroeconomic issues, including inflation and geopolitics, were among their top worries in Q2. The Russia-Ukraine war and its impact on supply chains weigh heavily on CFOs' minds.
Internally, talent remained the top concern for CFOs, followed closely by strategy execution. CFOs are acutely concerned with retention and wage inflation, among other areas related to talent.
CFOs' role in decarbonization efforts
Nearly three-quarters (73%) of CFOs indicated that they are involved or very involved in their organizations' decarbonization efforts as a strategist. Just more than 1 in 4 (27%) CFOs indicate that their organizations would reach net-zero emissions by 2030, with an additional 34% saying their organizations would reach it by 2050.
Costs of decarbonization strategy and funding approaches decarbonize
CFOs expect to incur the most significant costs related to their organizations' decarbonization goals in increased operating and capital expenditures, and in transforming their organizations' overall business. model and value chain. To fund decarbonization efforts, 69% of CFOs said they use internal cashflows from operational savings, while more than one-third (37%) said they reallocate growth capital from carbon-heavy resources, assets, businesses or product lines.
Key quotes
"CFOs are expecting an increasingly gloomy economic environment across the board, which aligns with their declining expectations for performance on a year-over-year basis. Against the backdrop of rising interest rates, the attractiveness of borrowing sharply diminished, and CFOs are less willing to take on greater risks. As we continue assessing the impacts of shifts in policy, inflation, and geopolitical conflicts, the next few months should prove critical for CFOs as they lead their organizations through turbulent times."
"Decarbonization is a business imperative across industries, and the survey shows that CFOs are increasingly involved in both strategic and financial aspects in the effort to reach net-zero. CFOs also indicate they need the ability and tools to capture relevant data to meet enhanced disclosure requirements proposed by regulatory agencies. A robust ESG strategy will be critical to driving reliable performance and resiliency and ultimately bring greater quality, transparency, and trust to stakeholders."
Download the complete findings from the Q2 2022 CFO Signals survey here.
Methodology
Every quarter, Deloitte's CFO Signals closely follows the thinking and priorities of leading CFOs that represent some of North America's largest and most impactful organizations. This report summarizes CFOs' opinions across four key areas: business environment, company expectations and priorities, financial priorities, and personal priorities.
The CFO Signals survey for the second quarter of 2022 was conducted between May 2, 2022, and May 16, 2022. A total of 97 CFOs participated in this quarter's survey. This survey seeks responses from client CFOs across the United States, Canada and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. Participation is open to all industries except public sector entities.
For more information about Deloitte CFO Signals or to inquire about participating in the survey, please contact [email protected].
About Deloitte
Deloitte provides industry-leading audit, consulting, tax, and advisory services to many of the world's most admired brands, including nearly 90% of the Fortune 500® and more than 7,000 private companies. Our people come together for the greater good and work across the industry sectors that drive and shape today's marketplace—delivering measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to see challenges as opportunities to transform and thrive, and help lead the way toward a stronger economy and a healthier society. Deloitte is proud to be part of the largest global professional services network serving our clients in the markets that are most important to them. Building on more than 175 years of service, our network of member firms spans more than 150 countries and territories. Learn how Deloitte's more than 345,000 people worldwide connect for impact at www.deloitte.com.
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SOURCE Deloitte
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