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82% of CFOs Think North American Economy Will Be in Worse Shape Next Year

Just more than half of the financial chiefs surveyed for a Deloitte report think the North American economy is in good shape.

Down from 64 percent in the first quarter, 52 percent of CFOs have positive view of the economic output for the U.S., Canada and Mexico. What’s more, their view of Europe and China is plummeting as well, with sentiment at 9 percent (down from 31 percent) and 12 percent (down from 29 percent), respectively.

Moreover, only 18 percent said they expect the North American economy to be better a year from now, down from the 36 percent in the previous quarter. That means 82 percent expect the continent’s economic health to decline in the next 12 months. They lowered their outlooks for other regional economies too. Just 7 percent of the CFOs surveyed believe Europe’s economy will improve a year from now, down from 26 percent in the last quarter. And only 19 percent said they expect China’s economy will improve, down from 31 percent.

How bad do they think it will get?

Just 32 percent of CFOs polled for Deloitte’s quarterly CFO Signals report said they view debt financing as attractive. That’s down significantly from 85 percent in the last quarter’s survey. Given their current assessment of the economies and expectations a year from now, they clearly believe that now’s not the right time to take on additional debt. And only 35 percent said taking greater risks is a good idea at the moment, down from 47 percent in the first quarter. However, CFOs in the retail and wholesale sector, at 47 percent, were most inclined toward greater risk-taking, the survey found.

“CFOs are expecting an increasingly gloomy economic environment across the board, which aligns with their declining expectations for performance on a year-over-year basis. Against the backdrop of rising interest rates, the attractiveness of borrowing sharply diminished, and CFOs are less willing to take on greater risks,” Steve Galluci, national managing partner, U.S. CFO Program, Deloitte LLP and global leader at Deloitte Touche Tohmatsu Ltd., said.

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“As we continue assessing the impacts of shifts in policy, inflation, and geopolitical conflicts, the next few months should prove critical for CFOs as they lead their organizations through turbulent times,” Galluci added.

Financial executives are also concerned about the costs needed to meet decarbonization goals.

CFOs who were polled represent diversified, large firms, with most reporting revenue over $1 billion and nearly one-quarter have annual revenue greater than $10 billion. One in four, or 27 percent, said their firms would reach net-zero emissions by 2030, with an additional 34 percent shooting for 2050.

Many are also concerned about macroeconomic issues and retaining top talent.

“The RussiaUkraine war and its impact on supply chains weigh heavily on CFOs’ minds,” Deloitte said. “Internally, talent remained the top concern for CFOs, followed closely by strategy execution. CFOs are acutely concerned with retention and wage inflation, among other areas related to talent.”

Pace of defaults likely to pick up

Meanwhile, credit ratings firm S&P Global Ratings on Thursday said a growing number of companies won’t be able to meet their financial obligations as the year unfolds. It documented just 32 defaults so far this year, behind 45 at the same period last year and lagging the five-year average of 57.

“The consumer products sector lead the default tally with six, followed by homebuilders/real estate with five,” according to an S&P report by credit markets research experts Nicole Serino and Patrick Drury Byrne.

None of the consumer products firms appear to be in the apparel and retail sector, although there were a few defaults listed as “confidential.” More recent defaults were media and entertainment firm in Germany, a utilities firm in the U.S. and a financial firm listed as “confidential.”