European CFOs: public confidence needed for economic recovery

March 29, 2017

The first quarter of 2017 has seen an increase in the number of CFOs who are in a positive mood about the economic prospects. Political instability as well as company regulations should be tackled in order to improve the business environment, according to 40% of the financial directors. More than half of the CFOs consider that the lack of public confidence in businesses and government affects the business environment. These are business results from CFO Survey Europe, globally the longest running quarterly survey among CFOs, carried out by TIAS School for Business and Society (Tilburg) and Duke University (North Carolina, US). 

The number of optimists continues to grow, but average economic sentiment fails to materialize
The upturn in the number of optimists among the European CFOs at the end of 2016 appears to be continuing in the first quarter of 2017. More than 40% of the European financial directors express their confidence about the economic prospects, while only 20% take a gloomier view on the economy. Confidence in the financial prospects of the own company has also improved. This quarter has not only seen the number of optimistically inclined financial directors increase to 46.5%, but the average level of optimism has also risen to 62.3 on a scale of 100. 

This positive sentiment has led to an (expected) improvement in overall company expenditure. For instance, the expected growth in capital investments has increased significantly compared with the previous quarter and is now at 6.7%. The anticipated growth in expenditure for technology, marketing and R&D (of 4.8%, 2.8%, 3.9% respectively) showed an improvement for the first quarter of 2017.
In spite of the fact that the European CFO is very positive with regard to the financial perspectives of his own company, the prevailing economic sentiment seems to be acting like a brake. The fact that the modest level of confidence of the past four quarters has again stuck at an average of 55.7 (measured on a scale of 100) may indicate a much deeper problem.

The lack of public confidence has affected the business environment
Companies used to consider economic uncertainty, government policy and regulations to be obvious issues for concern, but now more than 50% of the CFOs say that the lack of public confidence in business and the government that have affected the general business environment. Almost one third of the European financial directors are of the opinion that their enterprise and business management also suffer from the immediate consequences of this lack of confidence. For instance, a quarter of the enterprises saw their turnover compromised, 19% has adjusted the internal organization and another quarter say that they will actively exploit marketing and PR in an attempt to avoid damaging, or even losing, public confidence.

According to Kees Koedijk, dean and director of TIAS Business School, this demonstrates all the more that business and society are inseparably linked to each other. “And of course, that does have consequences. For instance, 40% of the European companies say that they have improved their transparency, reporting, governance, policy and procedures. But a one-dimensional, internal approach like that no longer suffices when it comes to restoring public confidence.” 
According to Koedijk, both companies and the government will more frequently need to be forced to take a clear stance so that their nature and intentions can be more readily evaluated by the actors in the society in which they take part. In this respect, it no longer makes so much difference what you choose, as long as you make a choice and do so unambiguously. “Take for instance the recent unrest in the US surrounding the numerous trade agreements. On the one hand, more than half of the European CFOs think that their own government should resist the US or at least retaliate in equal measure. At the same time, 53% is of the opinion that their own company should remain neutral and another 19% do not even know what their company should do in this situation. Although currently far more decisiveness and direction is demanded, it would appear that companies are still rather reticent in this respect. In the long run, do they not thus sell themselves short?’, says Koedijk.    

 
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