Economic sentiment among U.S. CFOs increasingly grim; European colleagues possibly a bit more hopeful

The increasing pessimism might indicate the severity of the significant challenges in the U.S. In slight contrast, the European sentiment actually shows a moderate improvement. This may indicate that the dire economic outlook in Europe may have bottomed out. These are the results of the latest CFO Survey, jointly conducted by Tilburg University, Duke University and CFO Magazine.

Optimism in the United States, Latin America and Asia Economic sentiment in the US has eroded further during this fourth quarter and continues the trend of the last three quarters. After the negative sentiment of the previous quarter, in which nearly 44% of the surveyed CFOs indicated to be less optimistic, the number of pessimists has increased to over 50%.

The "fiscal cliff ', a combination of drastic cuts in government budgets and spending associated with simultaneous tax increases, is currently one of the primary worries of the financial executives. Their concern that the political establishment is unable to reach an agreement by the 1st of January 2013 is reflected in the employment outlook. Hiring plans for the next twelve months are flat across the board. The same holds for the expected growth in investment next year, which is now estimated at only 2.5% compared with almost 8% just over a year ago.

In Latin America, the economic sentiment is much better

With almost 50% of the respondents being more optimistic about the economy, this region is clearly leading the way. The Asian region follows right behind. Over 40% of the financial directors in Asia state to have a more optimistic outlook.

2013 a litmus test for European companies

The optimism among European CFOs has witnessed a slight improvement during this last quarter (up to 52 on a scale of 100). An actual improvement of the European economy however, has yet to come to fruition. Over 50% of the financial executives foresee difficulty in successfully implementing their growth and expansion plans for 2013.

The outlook for employment does not offer any relief either.Approximately one third of the European companies have reduced the working hours in the past six years. Almost half of them indicate that they are unable to restore working hours to pre-recession levels by 2013. In fact, more layoffs should be expected during the next twelve months as a result of the expected decrease in both the number of permanent and temporary employment contracts.

Glimmer of hope at company level?

Contrary to what one might expect under such dire economic circumstances, the financial directors in Europe are actually fairly optimistic about the financial prospects of their company. While over a third of them are more optimistic, the average optimism level has also increased to 62 (on a scale of 100).

The prolonged crisis in Europe has led many companies in various sectors to drastically cut costs across the board. This has not only enabled them to place themselves in a much better position to weather the crisis, but also allows them to benefit from any economic upturn much faster. This may very well explain why growth expectations for investments (3.5%) and spending on R&D (0.8%) and marketing (2.1%) remain moderate but positive and show an improvement compared to the previous quarter.

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Quaterly Report Q4 2012, CFO Survey (2012)