U.S. CFOs Watch Presidential Election And Brexit For Signs Of Protectionism
It is not surprising that Chief Financial Officers (CFOs) in the United States are watching the presidential election closely, or that they have concerns about the ramifications of the United Kingdom’s vote to leave the European Union. But a survey just out reveals that 87% of them believe that the future performance of their company depends at least somewhat on the outcome of the presidential election, with 17 % citing “strong” or “significant” dependence. And their political allegiances are shifting – while 74% of U.S. CFOs consider themselves Republicans, the number identifying as independents is at 19%, nearly twice that of the second quarter in 2012. Just 8% identify as Democrats, which is half the level recorded in 2012.
Deloitte’s CFO Signals survey for the third quarter of 2016 is based on 122 responses. Some 73% of them are from publicly listed companies, and 80% of them are from companies with more than $1 billion in annual revenue.
“In many ways, CFOs’ sentiment and concerns this quarter aren’t too different from what they were last quarter and in many other quarters over the past few years. In particular, concerns about global economic growth, capital market conditions, and regulation have been fixtures in our survey for many quarters. What seems different this quarter, however, is CFOs’ level of concern about how global and regional politics might affect the path forward for each of these areas” Greg Dickinson, managing director, Deloitte LLP, and leader of Deloitte LLP’s CFO Signals™ said.
“In particular, the U.S. election and Brexit vote seem to be raising questions about the level of public support for globalization and about the possibility of more protectionist policies in major economic zones. This is something we haven’t seen in previous quarters—not even in previous quarters leading up to elections” he added.
U.S. CFO expectations for growth in revenue, earnings, capital spending and domestic hiring reflect mixed sentiment. While year-over-year revenue growth expectations rose to 4.2 % from the previous quarter’s 4 %, this indicator is still among the lowest in the survey’s history. Earnings growth expectations fell to 6.1 %, barely above the survey low of 6 % recorded in the first quarter of 2016, and significantly lower than the last quarter’s 7.7 %. (These numbers are averages that have been adjusted to eliminate the effects of stark outliers, said Deloitte.)
Some 71 % of CFOs said they regard U.S. equity markets as overvalued – a new survey high – and up substantially from last quarter’s 56 %. “The sharp drop in CFO sentiment that occurred when equity markets got pummeled at the start of 2016 may indicate that CFOs’ optimism is somewhat fragile. It might suggest CFOs are wary of potential events that could trigger a rapid decline in global business conditions” said Mr Dickinson.
When asked how much macroeconomic factors are affecting their businesses, CFOs cited low interest rates and a strong U.S. dollar as having a significant impact on their business planning. Some 70 % of CFOs said slow growth in Europe was affecting their planning, and 65 % cited slow growth in China, while 57 % pointed to the U.S. presidential election and the U.K.’s Brexit vote.
But although 65 % of CFOs claimed significant business exposure to the U.K., and 42 % said they sell into the U.K. from North America and/or the rest of the E.U., “surprisingly few plan significant business changes as a result of the Brexit vote” said Deloitte.
“What CFOs report about their companies’ exposure to the effects of Brexit are in line with what we are seeing from other reports – a minimal direct impact for many U.S. companies, with the more significant exposure and risk limited to companies that have U.K. facilities or significant exports to the U.K. and E.U.,” says Dr. Patricia Buckley, managing director, economic policy and analysis, Deloitte Services LP. “A slowdown in growth of these markets could potentially pose an issue for these companies down the line” she added.
Asked for their views on the state of various economies, 46 % of U.S. CFOs surveyed described the North American economy as ‘good’ or ‘very good,’ up from the previous quarter’s 40 %, but well below 55 % in the Q4 2015.
Perceptions of Europe’s current economic state slid further, with just 4 % of CFOs describing it as good. This figure was down from 6 % the previous quarter. Just 10% of U.S. CFOs surveyed see any prospect of improvement on that front. The figure has fallen from 15 % the previous quarter, and is well below the 30 % level of those optimistic on Europe’s economic prospects a year ago.
This article was written by Dina Medland from Forbes and was legally licensed through the NewsCred publisher network.
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