The Economy

CFOs Still Cautious About Growth: EY

Economic uncertainty, the ongoing debt-ceiling fight and the Affordable Care Act are causing CFOs to be cautious — perhaps overly so.
Alissa PonchioneNovember 11, 2013

For many global CFOs, continuing economic uncertainty is reason enough to remain cautious, even prudently so, according to an Ernst & Young “CFO: Need to Know” paper.

The U.S. government shutdown, the ongoing debt ceiling fight and the Affordable Care Act are holding back companies from aggressively growing,  according to EY, citing surveys by CNBC. Although the shutdown had a small impact on companies, the debt-ceiling fight brought firms to the edge, instilling fears of a potential deep recession if the United States went over the cliff, EY says.

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With all these uncertainties, CFOs of multinationals are hedging their bets on an improving U.S. economy. In August, about 38 percent of global CFOs felt the overall U.S. economy was stable, and 62 percent felt the economy was modestly improving. However, none of the surveyed CFOs in August felt the economy was strongly improving, compared with 4 percent of CFOs who thought so in July.


Tom McGrath, EY Americas senior vice chair of accounts and the paper’s author, says a CFO’s role is to mitigate risks, but as a group CFOs may be acting too cautiously. “We see a little bit of optimism there — a little bit is the key word,” he says.

There are big deals and bold moves going on, but they are different than they were a decade ago, McGrath says. Today, companies are going for simplification, and focusing on carve outs, spin outs and breaking up conglomerates.

Additionally, CFOs are being selective about regional growth strategies. Fifty-two percent of CFOs are focusing on growth, says EY, up from 41 percent a year ago. Of the CFOs with companies in China, two-thirds plan to expand in the region. Slightly more than half of CFOs are planning to expand operations in the U.S.

Demographic and economic expansion are the catalysts for growth in the Asia-Pacific region, McGrath says. With a growing number of middle-income households in the region, there is an increasing demand for consumer products and infrastructure. “You [also] see that in Latin America and Africa,” he adds.

Companies are more bullish on emerging markets long-term, but McGrath believes that the United States is still a powerful country. Looking at U.S. demographics, the population is a decade younger than that of Western Europe. “Our economy is continuing to expand,” he says. “What is holding the U.S. back today is relative comparison [to emerging markets] and so many [economic] uncertainties.”

Because of the uncertainty over the Affordable Care Act, lack of tax incentives for corporations in the U.S. and labor laws, nearly two-thirds of CFOs surveyed were not planning for any new hires in the third quarter. McGrath says this is partly due to a “skill deficit” caused by immigration issues and the number of companies that now are dependent on highly skilled workers.


While students come to the U.S. to learn at universities, most are going back to their home countries, and the ability to retain talent is no longer a foregone conclusion, McGrath says. It’s a two-fold problem. Educated workers are finding lucrative employment in emerging countries, and it’s more difficult for them to secure the right documentation to stay in the United States.

However, there is still long-term bullishness about the United States. For a long time, the country had a service-based economy, but McGrath says there is a resurgence of manufacturing  with an emphasis on embedded technology, which requires highly educated engineers and mathematicians.

To achieve a level of growth, U.S. companies need to retool the workforce and find a “higher-caliber worker to drive manufacturing processes,” McGrath says.

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