Despite uncertainties, CFOs are optimistic

Despite continued uncertainty given the economic and business environment, European CFOs remain optimistic about their companies' growth potential in the coming year, according to the latest Deloitte European CFO Survey. The third quarter 2016 survey polled 1,148 CFOs in 17 European countries, including 111 in Switzerland, from Deloitte member firms.

Two-thirds (67%) of European CFOs said their companies face great financial and economic uncertainty, although the proportion of this group is slightly lower than in the first quarter (66%). In the UK and Germany, this perception is strongest at 88%, and weakest in Finland at 36%. In Switzerland, the percentage of CFOs registering high uncertainty is slightly lower than the European average at 63%. This figure has fallen by six percentage points since the first quarter as the exchange rate shock subsides peu à peu.

CFOs remain optimistic about sales growth

26% of CFOs are more optimistic about the financial outlook for their company than they were three to six months ago, a slight increase from 25% in the first quarter. In the UK, optimism is lowest following the Brexit referendum, at just 16%. The situation is assessed most positively by Swedish CFOs - 44% expressed confidence. In Switzerland, optimism is slightly above average at 27%.

Despite high uncertainty and low risk appetite, 65% of CFOs expect their companies' revenues to increase next year, up from 63% in Q1 2016 (Switzerland in Q3: 64%). 46% of UK CFOs expect revenue to increase, the lowest percentage of all countries. Polish CFOs were the most optimistic, with 83% expecting revenue growth.

Michael Grampp, Chief Economist at Deloitte in Switzerland: "Despite the difficult economic environment, CFOs are confident that their companies will weather the uncertainty and grow over the next twelve months. This is partly because companies have adapted better to the uncertain environment in which they have now been operating for some time. However, it also shows the resilience of the European corporate sector, which has faced sluggish growth and several shocks in recent years but is showing signs of a more sustained recovery this year. European GDP growth is expected to be 1.6% this year. While this is the third consecutive year of low growth for Europe, it is also the highest figure to date since the financial crisis."

Brexit and political risks

37% of CFOs said the negotiations over the British leaving the European Union will hurt their business, while 50% expect no impact. 5% believe the exit will have a positive impact. Negative sentiment is strongest in the U.K., with 65% believing that Brexit will hurt economic development. However, the impending Brexit is also causing concern among CFOs in Portugal (52%), the Netherlands and Ireland (48% each). In Switzerland, the mood is somewhat more optimistic, but 23% still express concern.

CFOs were also asked which aspects of a potential Brexit would most impact their companies. In response to this question, participants from 14 countries said that increasing complexity and regulatory costs would have the most serious impact. Restrictions on labor mobility and reduced export opportunities due to non-tariff trade barriers were also cited.

Overall, geopolitical and economic uncertainty was ranked by respondents in nine countries as the biggest risk factor for businesses in the year ahead, while weak domestic demand was cited as the biggest risk in four countries. Both factors are also seen with concern in Switzerland, while currency risk is mentioned most frequently and monetary risks and regulatory issues are also high on the list.

Michael Grampp comments: "Companies across Europe had to contend with various political shocks over the summer, which translated into a high level of uncertainty. Brexit is foremost among them. Over a third of European CFOs said that the negotiations for the British to leave the EU will have a negative impact on their company. Concerns around regulatory changes weigh the heaviest, but restrictions on labor mobility and export opportunities are also cited as risks for European companies."

"However, Brexit is not the only concern for Europeans. The political uncertainty felt to varying degrees in countries from Spain to Turkey, the upcoming elections in France and Germany, and now, of course, the outcome of the U.S. election are causing concern on corporate boardrooms."

Source: www.deloitte.ch