CFO Optimism in Asia Remains Strong

Optimism in Asia (not including China) remains strong, with 57 percent of CFOs more optimistic than they were last quarter and 25 percent more pessimistic, says the most recent Duke University/CFO Magazine Global Business Outlook Survey.

 

The quarterly survey, which concluded June 3, asked 120 CFOs from Asia (not including China) and 68 CFOs from China about their expectations for the economy.

 

The survey finds that China’s level of optimism has fallen behind optimism in the rest of Asia for the first time in the history of the study.

 

The top internal concern among Asian CFOs is difficulty in attracting and retaining qualified employees, followed by difficulty planning and employee morale. The top external concerns in Asia are intense pricing pressure and weak consumer demand. Chinese CFOs also worry about government policies.

 

Full-time domestic employment is expected to increase by about 6 percent in Asia in 2011 and wages will rise by nearly 10 percent. Capital spending will increase by 5 percent, a significant drop from last quarter.

 

Asian manufacturing firms expect capacity utilisation to rise to more than 90 percent by year-end.

 

The Japanese nuclear crisis has slowed the ability of Asian firms in other countries to complete orders, particularly in Indonesia, Singapore and China.

 

In the U.S., optimism among chief financial officers there has fallen, but spending plans indicate continued moderate growth over the next year. Hiring will be minimal – less than 1 percent over the next year – though many companies plan to reinstitute some employee benefits.

 

U.S. CFOs were asked whether the recent rapid growth in capital spending was leading to machinery that might replace employees and therefore reduce labor force, or whether their capital spending would increase the need for employment. Thirty-eight percent of companies report capital spending will lead to increased employment, while 52 percent say it will have no effect. Only 9 percent say that capital spending will lead to reduced employment.

 

Meanwhile, European CFOs are concerned about intense pressure on profit margins, difficulty in attracting and retaining skilled employees, difficulty in planning due to economic uncertainty and corporate liquidity.

 

About 20 percent of European firms say they are hiring, but nearly as many say they are overstaffed.

 

European CFOs expect earnings to increase by 6 percent in the next year and capital spending by 4 percent.

 

Eighty percent of European CFOs think Greece will default on its debt within one year unless additional financial aid is provided. Only one-third think current proposals to extend maturity and reduce interest rates are sufficient. If Greece defaults, 42 percent of European CFOs think it is likely that Spain will need a bailout to avoid default.

 

Nearly half of European CFOs believe a Eurozone country will experience an economic depression due to recently enacted severe austerity programs.

 

 

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