European CFOs less confident about ECB plans

The economy seems to be recovering quickly. The latest figures from the CFO Survey show that nearly half of the financial directors interviewed are feeling more positive about the economy and about the future of their companies. 44% of respondents think that the European Central Bank’s (ECB) plan to buy up government bonds will not have the desired effect on the economy. CFOs see more merit in structural reforms and plans that focus on large-scale investments. CFO Survey Europe is an initiative of TIAS School for Business and Society and Duke University.

Optimism Among Financial Directors in Europe

The optimism among European CFOs about the prospects of the domestic economy is starting to rise again. During the first quarter of 2015, we saw an increase in the number of optimists – up to 48% compared to 32% in the previous quarter. The average level of optimism has increased from 53 to 58 (on a scale of 0-100). We also see that their confidence in their own companies has also increased to almost 66 on a scale of 100. Everything indicates that the economy is recovering.

A willingness to invest also increased sharply, with an expected growth in investment over the next twelve months of 6.2% on average. This not only represents an increase for the third consecutive quarter, but also a level not reached since late 2010. Additionally, a third of companies expect to complete an acquisition this year, of which, on average, 55% are foreign takeovers. Over 20% say they intend to sell their business or part thereof. 

Little Trust in the ECB Program 

This month the ECB launched its monthly purchase of government bonds from banks in order to stimulate the economy and counter inflation in the Eurozone. With a planned duration of 19 months, the buyout plan will cost 1.140 billion euro in total. By selling bonds, the banks will receive more cash. When they lend the money to citizens and businesses, it will then increase spending - which will in turn drive economic growth. This could also finally drive up inflation again (currently a major concern). At least in theory. Only 23% of respondents actually believe that this could happen. Almost 40% of the financial directors are of the opinion that the ECB program will ultimately only benefit the financial markets without benefiting the real economy.

"It is unsurprising that European businesses question the effectiveness of this program. When we continued to ask questions, it turned out that more than 60% of CFOs expect that the ECB program will not have any perceptible effect on their business. We have, of course, been able to see for some years that banks have become much more cautious in their lending. Under political and social pressure, they have had to adjust the risk profile of their balance sheets. This has not only resulted in them now holding higher capital buffers, but they now also apply more stringent test criteria for businesses and citizens who want to qualify for a loan. The fact that more money is now being injected into the financial system does not automatically mean that it will become any easier for companies to take out a loan,” says Kees Koedijk, dean and director of TIAS School for Business and Society. 

More Confidence in Structural Reforms

European CFOs also have much more confidence in structural reforms (over 80%) or in investment programs, such as the European Fund for Strategic Investments (EFSI), as suggested by Jean-Claude Juncker. This last plan should be able to attract 315 billion euro of external investments for large projects. More than 70% of the CFOs surveyed think that this plan will have a positive impact on the European economy.

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Quarterly report Q1 2015, CFO Survey (2015)

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