Now that the war in Iraq is over, will the economy bounce back soon? Plenty of finance chiefs think so. In fact, CFOs are generally more hopeful about the short-term prospects for the U.S. economy than they have been in a year.
According to our quarterly Global Confidence Survey of finance executives, 36 percent of U.S. respondents say they are either “confident” or “very optimistic” about the domestic economy over the next year. That’s up from 19 percent who held positive views last quarter, when the nation faced the uncertainties of war.
Some respondents think things are already improving. In fact, 16 percent say that a broad economic recovery is already under way, up from 9 percent last quarter. Another 41 percent believe that the recovery will begin this year.
Along with the recovery will come healthy profits, predict CFOs. At least 54 percent of respondents expect profits to rise next quarter, and almost a third are looking for earnings increases of more than 5 percent. That’s in line with real results from the first quarter, when earnings rose a robust 33 percent on an 11 percent rise in revenue, according to Standard & Poor’s Compustat, lifting the possibility that a turnaround is in progress.
Of course not everyone is a cockeyed optimist. Nearly 40 percent of respondents don’t believe the recovery will begin until 2004 or later, and 31 percent say they are “concerned” about the U.S. economy over the next year.
Their specific worries haven’t changed much. Weakness in the U.S. economy still ranks first on their list of top business concerns, and lack of capital ranks third, as it did last quarter. Showing, perhaps, that the burdens of the Sarbanes-Oxley Act are starting to hit home, increased regulation moved from ninth to fourth on the list of business concerns. The proportion of CFOs who ranked regulation as one of their top three concerns jumped to 10 percent, from 5 percent last quarter.
Weakness in the global economy is also more of a concern, moving from fourth to second. Indeed, only 16 percent of U.S. respondents have positive views of the global economy.
Meanwhile, CFOs overseas are less cheery about their own economies. In Europe, traditionally the most bearish region since our survey began in 2000, finance chiefs are downright gloomy. A full 62 percent are “concerned” about the European economy over the next year, and only 8 percent hold positive views of the economy.
CFOs in Asia are also anxious about the region’s economic outlook over the next year. Just over half hold negative views of the business outlook in Asia, and nearly a third are “neutral.” Undoubtedly SARS (severe acute respiratory syndrome) is wreaking economic havoc. More than 41 percent of CFO respondents in Asia say that SARS will have a “very negative” impact on the domestic economy. In the United States and Europe, finance executives are not as concerned. Only 13 percent of European CFOs and 7 percent of American CFOs say SARS will have a “very negative” impact on the local economy.