European CFOs more positive than ever about the economic prospects
March 12, 2014
A decrease in the European unemployment level is evident from the European CFO Survey. There have been fewer and fewer cutbacks on permanent staff during the last five quarters. The same applies to this first quarter in 2014, which shows a negative growth of permanent employment contracts of a mere -0,8% compared to -3,7% a year ago. This is evident from the figures of the CFO Survey, the longest running study among CFOs, conducted by TiasNimbas Business School and the Duke University.
The European CFOs are now more positive than ever about the economic prospects: 63% have more faith in the economy whereas a mere 15% is less positive compared to the previous quarter. And with that, comparatively speaking, there are more positive European financial directors than there are American. The Americans do however still value their own economy somewhat higher than their European colleagues, namely 60 and 58,5 respectively on a scale of 100.
The European directors also have much faith in their own companies. More than half is convinced that the financial situation of their own company will improve in 12 months to come. A mere 16% of the financial directors has a different opinion. With an average valuation of almost 63 on a scale of 100 for one's own company, the European directors are in step with their American colleagues. These positive sentiments can also be observed in the high expectations concerning the sales- and profit increase (5% and 8% respectively) in 2014.
Optimism leads to takeovers and perhaps, in time, to the recovery of employment
The climate seems to be favorable for a new impetus for company takeovers in Europe. For example, one-third of the CFOs expects to realize an acquisition in 2014, whereas almost one-fourth intends to sell the company, or part of the company. More than half of these cases concerns company takeovers abroad, in which more than 40% of the managing directors still consider Europe the most appealing destination.
There also seem to be rays of hope for the employment level in time. For example, European CFOs expect to spend substantially less (-10.6%) on the outsourcing of work in the 12 months to come. This as opposed to previous quarters during which companies opted more and more often to outsource work activities.
“Given the fact that the expected increase in productivity comes to around 5%, this can be considered a favorable development, as companies will be more willing to take on permanent staff as the faith in the economy and the market increases. A large majority of the CFOs indicated to indeed have a more positive outlook, and if we consider the trend in the course of the previous year, we observe a slow decline in the cutbacks on permanent employment contracts as well", according to Kees Koedijk, dean and director of TiasNimbas Business School and a Professor in financial management.
Room for improvements
Despite the widespread optimism among the CFOs, there are still a few concerns. In addition to consumer demands and the pressure on prices, competition from abroad, for example, has become a point of interest as well. This might explain why directors want to give priority to improving the client-orientedness, the strategic result-orientedness and the ability to adjust within the corporate culture.
But there are also issues that European companies have little or no influence on. For example, the financial directors in Europe claim that an interest increase of a mere 2% will have a substantially negative effect on employment, the investment level and the number of (corporate) loans. In addition, no less than one-third of the respondents is of the opinion that their own country is struggling with a real estate bubble (this goes for no less than 40% of the directors who were interviewed in the Netherlands). With the events in the American real estate sector still fresh in everyone's mind, the impact of the shattering of a possible bubble is disastrous to the economic climate and the ultimate consequences for the company are incalculable. And so it is of the utmost importance to the European politicians to effectively eliminate these concerns and to nourish the positive sentiments among companies and translate these in concrete terms into economic growth.
Quaterly Report of Q1 2014, CFO Survey (2014)