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Survey: Global concerns about Europe's impact CFO optimism

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Survey: Global concerns about Europe's impact CFO optimism

CFOs in both the US and Europe are feeling a bit more gloomy.

Surrounded by a myriad of global issues and threats, CFOs both in the United States and Europe are concerned about the financial prospects for their own companies, as well as global economic conditions, according to a recent survey conducted by Financial Executives International (FEI) and Baruch College's Zicklin School of Business.

Topping CFOs mounting list of worries is the slowdown in the European economy and continued threats to the future of the Eurozone, with CFOs doubtful of a resolution in the imminent future. The result is cautious spending, coupled with a pause in CFOs' momentum towards improved business and economic confidence. 

The recent CFO Quarterly Global Outlook Survey, which polls CFOs of public and private businesses in the U.S. and Europe on their economic and business confidence, reported that the optimism index for U.S. CFOs for the global economy this quarter averaged 55.78, up only modestly from the previous quarter (54.96) and their confidence in the U.S. economy saw similar movement (65.26 from 64.17 in the previous quarter).

While EU CFO optimism in the U.S. economy increased to an average of 65.73 from 64.72, their confidence in the global economy sank nearly five points to 49.48 from 54.80. CFOs in Europe also demonstrated a decline in optimism toward the financial prospects for their company, which dropped five points to 54.52 on the index this quarter (from 59.79). U.S CFO optimism for their company's financial prospects dropped to 70.41, down slightly from the 72.05 average reported last quarter.

This quarter, 56% of CFOs in Europe and 35% of CFOs in the U.S. said that they are approaching capital spending with caution, compared with a third of U.S. (33%) and a fifth of EU CFOs (22%) who reported spending at normal rates. Out of those U.S. CFOs with capital expenditure plans, 73% said they are most interested in technology investments. In contrast, 38% of European CFOs with capital expenditure plans focused on technology, with expansion into new and emerging markets and R&D following close behind.

Europe's sluggish economy and reform policies in China are the global crises that are having the most substantial impact on the economy and companies, according to CFOs. More than half (55%) of EU CFOs and a third (32%) of U.S. CFOs thought the European economy would have the biggest impact on long-term economic conditions in their respective countries. With regard to the crisis that would most impact the global economy, 31% of EU CFOs and 29% of U.S. CFOs selected the European economy, while 33% of U.S. CFOs and 24% of EU CFOs selected China's reform policies as their top choice.

In further examining the European economy, EU CFOs believed that EU economic recovery is far into the future. More than a third of EU CFOs do not expect a recovery in the European economy until 2017 or beyond. A fifth of U.S. CFOs said that they think a recovery is feasible by the second half of 2015, and about a third predicted one for 2016.

"CFOs in Europe and the U.S. had markedly different attitudes about the impact of global crises on their economies and businesses."

Still, CFOs on both sides of the globe shared a high level of worry over the future of the Eurozone when asked about their concern on a scale of one to five (five being the highest). More than three quarters of CFOs (76% in Europe and 79% in the U.S.) ranked their concern about the Eurozone at three or higher. CFOs also believed that the most likely impact of the European Central Bank's (ECB's) quantitative easing program on the European economy would be the encouragement of banks to increase lending to finance business expansion in the EU (61% in Europe and 43% in the U.S.), or the reduction of exchange rates and increase of EU exports (41% in Europe and 37% in the U.S.).

"CFOs in Europe and the U.S. had markedly different attitudes about the impact of global crises on their economies and businesses. European CFOs were far more concerned about the standoff between Russia andUkraine, ranking this crisis in the top three with regard to implications for the European economy, the global economy and their own businesses," said Linda Allen, Professor of Economics and Finance for the Zicklin School of Business at Baruch College. "In contrast, U.S. CFOs were more concerned about the rise of ISIS and immigration/refugee issues than were their European counterparts. However, all respondents ranked the slowdown in the European economy as a top concern for the future."

Despite their decline in economic and business confidence, as reflected in a slowdown in the growth rate of revenues expected over the next year by U.S. CFOs, wage levels and employment expectations for CFOs remained stable this quarter. Thirty eight percent of U.S. CFOs stated that the levels they are paying are about the same as the levels they paid this time last year. Furthermore, 61% of U.S. CFOs and 32 % of EU CFOs reported that wage levels are rising when compared with the same time last year. Sixty eight percent of U.S. CFOs and 42% of EU CFOs plan to hire employees within the next six months; a somewhat higher percentage of CFOs in Europe (53%) are not hiring. The majority of CFOs (84% in the U.S. and 59% in Europe) stated that they have not been forced to reduce their company's headcount in the past year.

"U.S. CFOs also predicted a potential recession to be more than two years away." 

"With the myriad of economic and business issues facing CFOs, hiring, wages and headcount appear to be the one of the more positive areas this quarter," said Marie Hollein, President and CEO, Financial Executives International. "A good percentage of CFOs have plans to hire and more importantly, most have not been forced to make severe headcount reductions. So far, their macro-economic concerns have not impacted the size of their workforce or their ability to hire new talent."

U.S. CFOs by and large expressed dissatisfaction with the current U.S. tax rates and want the U.S. government to take action. When asked about their confidence in the ability of Congress to reform the U.S. tax law on a scale of one to five (five being the highest), 97% responded only a one or two. When asked about the specific solutions that the U.S. government should pursue to discourage U.S. businesses from taking advantage of tax inversion strategies, 70% of CFOs believed that the government should reduce U.S. corporate tax rates. While 30% believed that the U.S. should shift to a territorial tax format, the majority of U.S. CFOs (92%) said that they have not considered changing their firm's country or state of incorporation to reduce their tax obligation.

U.S. CFOs also predicted a potential recession to be more than two years away. When asked when they believe the U.S. would enter another economic recession, 46% responded that it would not happen until 2017 or beyond. Only 19% felt a recession could occur in 2016 and about a third (35%) were uncertain of the timing.

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