Recession Risk Still Acute, Finds CFO Survey

Three-fourths of Asian CFOs say the European debt crisis is negatively affecting their businesses, with one-fourth saying the negative effect is significant.

 

Optimism about the regional economy in Asia fell, with nearly 60 percent of CFOs becoming more pessimistic and only about one-fourth becoming more optimistic.

 

Still, the level of optimism in Asia is higher than in the U.S. and much higher than in Europe.

Wage inflation is expected to be 7 percent during 2012. Domestic employment should increase more than 5 percent.

 

These are some of the findings of the most recent Duke University/CFO Magazine Global Business Outlook Survey.

 

Half of Asian firms say it has become more difficult to borrow in the past year, and only 11 percent say it has gotten easier.

 

The outlook among U.S. chief financial officers has improved this quarter, with stronger hiring and spending plans relative to last quarter. At the same time, U.S. CFOs remain cautious about the future and peg the odds of a recession by mid-2012 at about 1 in 3.

 

“Even more worrisome than CFOs’ recession fears is that 46 percent of CFOs have no plan in place to deal with a recession next year if it happens,” said Campbell Harvey, a Fuqua finance professor and founding director of the survey. “It seems like they will wing it, which is shocking because the risk is substantial at 31 percent as opposed to just a couple of percentage points.”

 

Over in Europe, the situation is much worse than last quarter, with no growth expected in spending or hiring.

 

Many European CFOs believe their countries will soon enter recession or are already in recession.

 

In contrast to U.S. finance chiefs, nearly two-thirds of European CFOs say they have a recession contingency plan they would implement. Among these firms, the contingency plans call for a dramatic reduction in payroll (greater than 10 percent cut in domestic employment) and business spending (25 percent cut in capital spending).

 

Of the 90 percent of European CFOs who say the European debt crisis is negatively affecting their businesses, 45 percent describe the negative effect as significant. Half of European firms say it has become more difficult to borrow in the past year, and only 7 percent say it has gotten easier.
 

 

 

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