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Confidence plunges to a five-year low as finance chiefs prepare for a prolonged downturn.
Jason Karaian, CFO Europe Magazine
October 3, 2008
"A global economic slow-down is looming," according to the European Commission's latest forecast. According to finance chiefs, the slowdown is already well under way, and likely to get worse before it gets better.
Pessimists outnumber optimists worldwide in this quarter's poll of nearly 1,300 senior finance executives by CFO Europe, Tilburg University and Duke University. The depth of the despair in Europe, however, is striking. The gap between those expecting an improvement in the region's economy compared with those expecting a deterioration is the widest for five years. Confidence in Asia and America rose moderately, but the survey closed shortly before the nationalisation of Fannie Mae and Freddie Mac, the bankruptcy of Lehman Brothers, the takeover of Merrill Lynch and the bailout of AIG.
The credit-market turmoil is also taking its toll, with 42% of finance chiefs saying that their companies have been affected by tighter credit conditions, up from 31% the previous quarter.
In response to the gloomy outlook, CFOs are battening down the hatches. More than half of the finance executives polled say that they will launch "substantial" cost-cutting programmes and pare investment plans in the next six months. Capital spending is expected to grow by less than 1% over the next 12 months, down from a projection of more than 7% at this time last year.
João Zúquete is on the frontline in the fight against corporate fat. As the regional CFO for Portugal of Fnac, a France-based media and electronics retailer, he sees consumers slashing spending on a variety of goods, and he expects sluggish growth to continue through 2009. As a result, he is hunting for any and all excess costs to cut, particularly reducing headcount. Is he confident that the firm is trimming fat instead of muscle? "We've hit the muscle lots of times, and I'm sure that, in some cases, we're hitting the bone," he says with a resigned laugh. "We are getting leaner, but I'm not sure if we are getting better."
But there is a silver lining to the downturn. When the sales outlook is as bad as it is now, "the CFO becomes the most important person in the organisation," Zúquete says. "I have more power to determine what tasks are centralised and so on." Though the austerity measures that he proposes will help the company weather the economic storm, "I'm not the most popular guy in town," he adds with a sigh.