More than a third of U.S. CFOs say political uncertainty will slow their spending plans beyond the presidential election, according to the latest Duke University/CFO Global Business Outlook survey of more than 1,200 senior finance executives. The survey, which was completed on September 9, finds at least 33% of CFOs, regardless of who is elected, say they will hold back on investment after the November election as they wait to see how the new president will govern.

Specifically, 40% of CFOs say they will hold off on investment if Hillary Clinton is elected, while about 33% say the same in the case of a Donald Trump presidency. The survey also finds that:

About 26% of all U.S. firms say they are already delaying investment because of the election.

Among the 26% currently delaying investment, three-fourths will continue to delay investment if Clinton triumphs, versus roughly half if Trump wins.

Among the majority of firms not currently delaying investment because of the election, about one quarter say they would change course and delay investment plans if Clinton were elected, and another quarter say they would do the same if Trump wins.

Due in large part to political and economic uncertainty, U.S. firms on average do not plan to increase capital investment or research and development spending over the next 12 months. This follows an already weak level of investment.

However, finance executives of U.S. companies indicate that spending will not be affected by moderate interest rate hikes. Only 1 in 3 firms say that a 1% hike in the federal funds rate would cause their firm to reduce capital spending, and only 12% say the same about a 50-basis-point hike.

Despite uncertainty in the political and monetary policy realms, the labor market continues to tighten in the U.S. Thirty-six percent of U.S. firms indicate they are having difficulty hiring and retaining qualified employees. Employment in the U.S. is expected to grow 1.4% over the next year, and CFOs plan to hike wages 2.9%, which is nearly double the expected 1.6% increase in product prices.

16Oct_Outlook_p44v2Still, U.S. CFOs remain upbeat about the domestic economy. On a scale from 0 to 100, financial executives rate their optimism at 60.6, up from 59.4 last quarter and slightly above the long-run average. Besides the aforementioned concerns, U.S. finance executives are also worried about regulatory requirements, the cost of employee benefits, and weak demand for products and services. They expect health-care costs to rise by 6.8% over the next year, more than a percentage point above what many experts are predicting.

Finance executives responding to the survey also project corporate earnings will rise by 7.3% over the next 12 months. But they were slightly less optimistic about their own firms’ performance in the same time frame. Confidence in their own companies’ financial prospects fell to 65.3, from 66.3 in the second quarter.

The Speed of Brexit
With the United Kingdom set to depart the European Union, the Outlook survey asked U.S. finance executives how much of an effect the pace of the U.K.’s withdrawal would have on their companies. While most said the speed of Brexit would not affect their firms, 12% did say they prefer the U.K. to proceed slowly.

In Europe, predictably, there is more concern. Thirty-one percent of finance executives at European businesses say it would be best for their firms if Britain makes a very gradual exit from the EU. Thirty percent of European CFOs believe that Britain will complete the exit by the end of 2019; 54% say it will happen by the end of 2020.

The reason why European CFOs want a slow Brexit is simple: 27% of European firms say their U.K.–based revenues will fall after Brexit. Among these firms, the proportion of revenues coming from the United Kingdom is expected to fall to 14% from 22%. And some European finance executives think Brexit is just the beginning of trouble in the EU: One in five European CFOs believe that another country will vote to withdraw from the EU within two years. The leading candidates, in order of most mentioned, are Denmark, the Netherlands, Hungary, and Greece.

16Oct_Outlook_p45v2The wave of unrest is also affecting the political mood in individual European countries. Nearly 60% of European CFOs say they are holding off on investment due to their own country’s political uncertainty. Still, the optimism index in Europe increased to 56.3 this quarter, up from 55.3 in June. And since the Brexit vote, European CFOs have grown more confident about their own companies’ financial prospects, with that optimism level hitting 63.4, the highest it has been since the fourth quarter of 2015. Finance executives in Europe project wages will increase by 1.7% over the next year, and employment by 1.1%.

Mixed Bag
In Asia, Latin America, and Africa, economic optimism and business confidence were dissimilar. Optimism about domestic economies shot up in Asia, with the index hitting 65, up from 58.7 in the second quarter. But variations ranged from 40 in Singapore, 48 in Japan, and 55 in Malaysia to 65 in India and 70 in China.

Two-thirds of Asian CFOs indicate they are holding back on investment spending due to political risk in their countries, though they expect capital spending to rise by an average of about 5.5%. No spending growth is expected in Japan. CFOs think wages will rise by 4% in Asia (which is modest by historic standards), with growth of less than 3% in Japan versus 5% in India. They also think full-time employment will be flat across the region.

In Japan, finance executives are evenly split on Prime Minister Shinzo Abe’s 7.5 trillion yen stimulus plan, with 46.9% calling it “good news” and the same percentage labeling it “irrelevant.”

Meanwhile, Latin American economic optimism dipped to 49.8 from 52.9 last quarter, though the optimism index varies widely across the region’s individual countries. Optimism in Chile and Ecuador remains below 50, while Brazil rebounded somewhat to 53. Optimism remains strong in Mexico (63) and Peru (69). Averaged across Latin America, finance executives expect their capital spending will rise 2.1% in the next 12 months, with a positive outlook in countries other than Chile.

Full-time employment among Latin American companies is expected to decrease 1.4% overall, but, again, there are wide national variations: Employment is expected to increase 3% or more in Mexico and Peru, but fall in Brazil, Chile, and Colombia. Eighty-eight percent of Latin American CFOs indicate that political risk is causing their firms to be more cautious in business spending. One bright spot is the recent election of President Pedro Pablo Kuczynski in Peru. Ninety-five percent of Peruvian CFOs expect his policies to be helpful to their firms, as do 43% of CFOs in Chile.

Africa was the only region in which finance executives were less optimistic about their domestic and regional economies and their own companies’ financial prospects. Economic optimism there dipped to 45.7 from 47.4 in the second quarter.

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