CFO Sentiment: New challenges emerge but optimism remains

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Having bounced back from the COVID-induced shocks of 2020, Australian CFO optimism is still holding up, despite the emerging challenges of rising inflation and interest rates.

According to the latest edition of Deloitte’s biannual CFO Sentiment survey, three-quarters of CFOs are feeling optimistic about the current financial prospects of their company although challenges in the economic environment mean they are now less confident than they were six months ago.

Key findings (with the survey conducted in June) include:

  • 75% of CFOs are optimistic about the financial prospects of their companies (15% highly optimistic, 60% optimistic) – a fall from 83% at the end of 2021, but still relatively strong
  • When considering economic conditions in the recent past, the net optimism of CFOs now relative to six months ago has dipped into negative territory, at -8%
  • 88% rated uncertainty levels as being higher than normal – seven points down from the 95% recorded at the end of 2021 (an all-time high since the survey began in 2009)
  • 25% think now is a good time to be taking on increased balance sheet risk, down from 58% at the end of 2021
  • 90% continue to cite difficulties in securing and retaining key talent as a business risk.

Deloitte partner, and CFO Program leader, Stephen Gustafson, said: “Coming into 2022, CFOs were confident about the financial prospects of their companies. Even as the economic environment has shifted, and uncertainty continues to dominate, this is encouraging.

“The first half of 2022 has seen new economic challenges emerge – and ones very different to the COVID-driven disruptions of the last two years.

“Over the past 18 months, our survey has reported a curious type of business confidence, where CFOs were rating uncertainty as high, but also thought it was a good time to be taking on more risk – to get on with the job.

“We’re now in a different monetary and fiscal environment compared to only a year ago, and that has seen a dip in net optimism, an indicator that had been in positive territory over the previous three surveys.

“This time uncertainty is still high, but it’s driven by different factors, including an inflation surge and rising interest rates. The result is that fewer CFOs now think it is a good time to take on risk.

“But business should take comfort from the likelihood that this imported inflation will peak soon, and they can still help mitigate the impacts by revisiting key pricing, cost and investment strategies.”

On the economic outlook, Deloitte Access Economics partner, David Rumbens, said: “The emergence of higher, and growing, inflation has introduced new challenges that businesses haven’t faced in decades. However, while the first half of 2022 has seen a host of new challenges emerge, it’s important to keep in mind that Australia is approaching this period of difficult inflation management from a position of strength.”

Skills and the battle for talent

“Difficulties in securing and retaining key talent was cited by 90% of CFOs as one of the top risks on their minds this year, and for the second time in a row,” Gustafson said. “For some, it has become business critical, while for others it is manifesting in higher costs and impacting growth plans.

“The opening of our international borders has eased some of the pressure on labour supply in some sectors, but it is still early days in the recovery phase, with net overseas migration to Australia still well below pre-COVID levels.

“Deloitte has stated publicly that we believe it is essential to rework Australia’s immigration policy and increase the skilled migrant intake to unlock our nation’s full economic potential. We believe this issue is more than a numbers game and that fixing the skills shortage means designing policy that addresses population, participation, and productivity.

“The disruptions created by COVID lockdowns have also emphasised the importance of upskilling employees to equip businesses to adapt to the rapidly changing environment.

“Nearly 60% of CFOs believe that focusing on improving culture, wellbeing and experience – and including hybrid working options – within their business is one key to lifting business productivity and supporting talent acquisition and retention efforts.

And looking ahead…

“CFOs’ interest rate expectations have changed dramatically over the past year,” Gustafson said. “Twelve months ago, two-thirds thought rates would stay around their record low levels. But with the cash rate starting to move up sharply, CFO interest rate expectations have also shifted strongly to a view of rates being higher by mid-2023.

“They’re not quite as certain about where the value of the Australian dollar will head, with just over half expecting it to remain around its current level in 12 months’ time.

“Yet despite the weaker economic outlook, 93% of CFOs expect no change in their M&A activity over the next 12 months, suggesting that a high proportion of businesses are confident there will be growth opportunities in their sector.”

About Prof Janek Ratnatunga 1129 Articles
Professor Janek Ratnatunga is CEO of the Institute of Certified Management Accountants. He has held appointments at the University of Melbourne, Monash University and the Australian National University in Australia; and the Universities of Washington, Richmond and Rhode Island in the USA. Prior to his academic career he worked with KPMG.