CFOs are now less likely to take risks - Deloitte
New research has identified political uncertainty as a leading factor in the decline of risk-taking in international businesses.
The Deloitte European CFO Survey has shown that CFOs are advocating cost control and reduction over new investment, particularly in countries that are experiencing shifts in internal and external political issues.
For example, the UK saw the largest fall in risk appetite in a drop of 22%, mirroring the wavering public opinion on areas like the impending EU referendum that will have a profound effect on cross-border business dealings and local regulation.
In fact, the survey revealed that 75% of CFOs support the UK's continued membership of the EU, citing the benefits to exports, inward investment and financial services, though most believe the legal and regulatory frameworks do not have a positive effect on business.
CFOs in Germany, Portugal and Turkey also cited national and international political factors as their top concerns.
Ian Stewart, Chief Economist at Deloitte UK, said: “Europe entered 2016 with a number of political and geopolitical risks that could threaten growth, confidence and political unity.
"Internal politics has been a destabilising influence in Spain, Ireland and Portugal, where closely contested elections led to a political stalemate in recent months, and the UK has seen rising uncertainty ahead of its referendum on EU membership."
Levels of financial and economic uncertainty mirror the slump in risk allowance, with 68% of European CFOs claiming an impact on their businesses.
|High level of uncertainty||93%||83%||83%||72%||66%|
|Willing to take risks||16%||25%||39%||30%||46%|
As a result, defensive business strategies are being strongly favoured over expansionary plans in 15 of the 16 countries included in the survey.
Other key findings
There has been a marked decrease in businesses willing to spend, with only 36% of CFOs expecting an increase in their company's capital expenditure over the next 12 months. Again, countries that are experiencing internal upset are least likely to adopt plans for investment.
25% of CFOs are more optimistic about the financial prospects for their company than they were three to six months ago, perhaps due to the reported caution reinforcing stability.
In an interesting refection of these attitudes, 39% of Eurozone CFOs are forecasting a rise in employment within their companies. Ireland is leading the way in hiring with 68% of CFOs predicting higher job numbers.
Ian commented: “The resilience of hiring plans in the face of these uncertainties show CFOs expect Europe’s recovery to roll on.
"In a sign that the recovery is spreading from Europe’s centre, hiring plans are strongest in those countries that saw the largest rises in unemployment after the financial crisis.
“So far, political risks have not knocked Europe’s recovery off course but the evidence of recent years is that sustained uncertainty acts as a brake on growth.”