The latest six-monthly Deloitte European CFO survey reveals that, for the first time since the research was launched in Spring 2015, the number of CFOs anticipating a fall in their company’s margins over the next 12 months (38%) exceeds those predicting an increase.
Expectations for revenues are also lower than at any point over the last five years although on average they remain positive – 49% of CFOs still expect an increase in revenues compared with 27% who predict they will fall.
The increasing pessimism among the 1,371 CFOs who took part in the survey has had a knock-on effect on risk appetite. This plunged to a record low for the second six months running, with fewer than one in five (18%) finding the current economic climate conducive to taking on risk.
According to the survey, the low appetite for risk is most noticeable in countries inside the euro area where just 84% of CFOs say now is not a good time. It is also very low among industries that are reliant on global trade, such as those in the automotive, industrial and transport sectors.
“The fall in risk appetite correlates with the continual increase in perceived financial and economic uncertainty,” the survey says. “Almost seven out of 10 CFOs (69%) now rate the current level of uncertainty as high or very high.”
European CFOs are also holding back on investment, with only 27% now predicting capital spending over the coming year, down from 26% in the spring. The most pessimistic were UK-based where 78% intend to reduce spending.
Hiring plans for the next 12 months are changing too: 32% are now looking to reduce headcount compared to 27% who are thinking of recruiting.
“Trade disputes, elevated uncertainty and a global slowdown have knocked the confidence of European CFOs,” said Ian Stewart, Deloitte’s UK chief economist. “While European equities have soared, risk appetite in the real economy among CFOs has dropped to a four-year low. Faced with an uncertain outlook, CFOs are shelving investment plans and doubling down on cutting costs.”
The survey also showed that companies (excluding those in the UK) were coming under pressure from stakeholders, including employees, clients and customers to take action on climate change. However, while 70% of companies plan to become more energy efficient, for example in their buildings, fewer than half (49%) have adopted carbon emission targets and just 27% plan to assess the impact of climate change risk on their business.