The mood of CFOs darkened during the just-ended fourth quarter of 2023, marked by lowered expectations for the performance of both the macroeconomy and their own companies’ performance.
Among 124 North American finance chiefs who participated in Deloitte’s quarterly CFO Signals survey, fewer than half (47%) rated current economic conditions in North America as good or very good, down from 57% in the third quarter.
Conditions in the United States, Canada, and Mexico, while perceived as declining, are seen as substantially better than those elsewhere in the world. For example, only 9% of the surveyed CFOs viewed Europe as having positive economic conditions, and that was down from 11% in the previous quarter.
The same directional trend was evident in opinions on conditions in China and South America. Only Asia (excluding China) showed a positive economic trend, with 28% of participants rating the economies there as good or better, up from 24% a quarter earlier.
Gloom over the economy is likely part of the reason why finance chiefs’ expectations for their own companies’ performance cooled off in the fourth quarter. Net optimism (defined by Deloitte as the percentage of CFOs citing rising optimism for company prospects minus the percentage citing falling optimism) diminished to +11, from +22 in the third quarter.
The proportion of those expressing greater pessimism for their financial prospects rose to 27%, up from 19%.
The results were widely divergent industry by industry, with strong gains for the energy and financial services sectors and poor performances by retail/wholesale, technology, and telecom/media.
Deloitte’s performance index (average percentage of CFOs citing positive year-over-year revenue and earnings growth) was unchanged at +81.
However, CFOs responding to the fourth quarter survey lowered their year-over-year growth expectations for five operating metrics — revenue, earnings, dividends, capital investment, and domestic hiring; the only area for which they raised expectations was domestic wages and salaries.
Asked about factors that could constrain their company’s ability to achieve its performance goals in the next 12 months, 70% of CFOs cited inflation, interest rates, and liquidity, which were lumped into a single category. About half (49%) pointed to macroeconomics, while 40% were concerned about geopolitics and 27% by a potential slowdown in market/consumer demand.
Meanwhile, CFOs’ views on both debt and equity financing continued to erode. Only 10% of those participating in Deloitte’s most recent survey rated debt financing as attractive, compared with 16% a quarter earlier. The appeal of equity financing plunged even further, from 29% to 19%.
On the debt financing side, there was a pronounced divide between CFOs of publicly traded companies, where the appeal factor remained stable (moving to 12% from 13%); and those at private companies, where the appeal sunk from 25% to 8% during the quarter.
Perhaps the most optimistic note in the survey results was that two-thirds of respondents (67%) said they planned to allocate or reallocate capital to new business investments in 2024. However, Deloitte noted in its survey report, “some might find that result interesting in light of the 62% of CFOs who say now is not a good time to take on greater risks.”