Confidence of CFOs hit by weak economic data and offshore debt troubles

The confidence of Australia’s chief financial officers has taken a hit on the back of weak local data and the debt troubles of the US and Europe, but a survey shows number-crunchers are optimistic about the nation’s long-term future.

A June survey of 101 chief financial officers of major Australian listed companies has found that just 4% are more optimistic about their companies’ financial outlook, compared with 41% in the previous quarter. The optimism figure is the lowest result since the third quarter of 2009.

The survey, conducted by accounting giant Deloitte between June 17 and July 1, also found that 68% of respondents said they face greater-than-average levels of external financial and economic uncertainty.

“Short-term sentiment has taken a strong hit off the back of what’s been happening locally and internationally, but there’s still considerable optimism about the long-term,” Stephen Gustafson, partner assurance and advisory at Deloitte, told SmartCompany.

According to Gustafson, confidence is being hit by overseas issues such as the European sovereign debt crisis, uncertainty over the US debt load, and the Middle East uprisings, as well as domestic uncertainty over the carbon tax, negative consumer confidence surveys, poor retail spending and commentary on the two-speed economy.

“Is there considerable uncertainty about the extent of recovery? I think there is,” Gustafson says.

With 49% of respondents saying now is a good time to be taking on more risk, Gustafson says there is an understanding that it is a “logical time for activity, and a time of opportunity, but the extent to which the uncertainty will act as a broke on that is still unknown.”

“There’s an underlying strength there. We’ve still got 70% expecting operating cashflows to rise, and CFOs identifying growth as their number one priority, with more than 40% saying an acquisition was likely in the next six months.”

Further, 84% of respondents tipped the March gross domestic product reading to be a one-off contraction, and 68% said credit was more available compared with 54% in the first quarter. For the first time also, a majority of CFOs (57%) said bank borrowing was attractive.

On the strong Australian dollar, most CFOs expected the local currency to trade at or above the US dollar for the next 12 months, but remained downbeat about what that meant for the wider economy. Seventy-seven said the stronger dollar, currently trading just below $US1.06, is a negative for the wider economy, while 52% said the rise had hurt their financial performance.

But just 35% have brought in changes to counter the effect of the stronger dollar.

Gustafson says while it is difficult for companies to readjust their currency positions once the dollar has soared, if the above-parity pricing represents the new norm – and there seems to be confidence that is the case – there’s a case for people to realign themselves.