Optimism among chief financial officers about the regional economy in Asia (not counting China) fell, with optimists and pessimists now evenly balanced. Last quarter, optimists outnumbered pessimists by two to one. In China, 69 percent of firms have grown more pessimistic about the economic outlook.
These are some of the findings of the most recent Duke University/CFO Magazine Global Business Outlook Survey.
The top internal concerns among Asian CFOs are difficulty in planning due to extreme uncertainty, working capital management and employee morale. The top external concerns in Asia are global financial instability, intense pricing pressure and weak consumer demand. Chinese CFOs also worry about government policies.
Full-time domestic employment in Asia is expected to increase by about 7 percent in 2011 and wages will also rise by about 7 percent. Capital spending will increase by more than 10 percent.
Asian manufacturing firms expect capacity utilisation to rise to more than 90 percent by year-end.
More than 60 percent of Asian firms say they will begin to deploy cash in the coming year, primarily on capital spending, hiring and benefits, paying down debt and marketing.
U.S. CFOs: No Double-Dip Recession
Chief financial officers don’t foresee a double-dip recession, but doubts about the strength of the economy have pessimists outnumbering optimists by more than five to one in the United States.
Business spending is expected to grow, though more slowly than last quarter, and hiring will continue at a sluggish pace.
CFO optimism plunged in the third quarter, with 65 percent of U.S. executives growing more pessimistic, compared with 12 percent who grew more optimistic. European and Chinese optimism also dropped dramatically, with pessimists outnumbering optimists by more than four to one. Optimism in the rest of Asia (not including China) also fell, though by a smaller margin.
Capital spending in the U.S. is expected to see a solid growth of 4.5 percent, but that is about half the pace predicted last quarter. One-third of firms say they’ve slowed planned spending this year, citing economic uncertainty and funding constraints.
Most firms plan to hold onto cash due to great economic uncertainty.
Optimism and Top Concerns
Even with some positive signs in capital spending and hiring, optimism among U.S. CFOs fell dramatically this quarter, with 65 percent saying they have grown more pessimistic and only 12 percent growing more optimistic about the outlook for the U.S. economy. This is much worse than last quarter, which saw an even split between optimists and pessimists.
CFOs also cited the continued high cost of health care, maintaining employee morale, and hiring and retaining highly skilled employees among their top concerns for their companies.
U.S. firms plan to increase capital spending by 4.5 percent over the next 12 months, down from 9 percent in last quarter’s survey and 12 percent six months ago. Spending on research/development and marketing/advertising are expected to grow about 2.5 percent.
Intense Pressure in Europe
In the globe’s most financially stressed region, European CFOs are concerned about intense pressure on profit margins, weak demand, financial instability, difficulty in attracting and retaining skilled employees, difficulty in planning due to economic uncertainty and corporate liquidity.
Full-time domestic employment in Europe is expected to fall 0.3 percent.
European CFOs expect flat or declining earnings over the next 12 months. Capital spending should increase by 3 percent.
Sixty percent of European CFOs think the downgrade to the U.S. credit rating was justified, though only one in five thinks the economic effects of the downgrade will be significant.
The majority (56 percent) of European CFOs think the economies in Europe and in the U.S. are equally bad, though most of the remaining 44 percent think the U.S. situation poses the greater threat to the world economy.
European CFOs rank China, Germany, and Sweden as having the strongest economies. They rate the U.S. economy below France’s and one spot above Spain, Italy and Portugal.
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