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CFOs remain wary in ‘shape-shifter’ economy

The latest survey of Chief Financial Officers (CFOs) released by Deloitte has revealed 84 per cent of CFOs believe now is not the time to take additional risk onto their balance sheets.


Deloitte chief operating officer Keith Skinner said the result – the lowest risk appetite shown by CFOs since Q1 2011 – reflected the entrenched mood of uncertainty and caution that has plagued the economy in recent years.


“High levels of uncertainty have been a recurring theme among CFOs since the survey began in 2009 and the overwhelming majority of CFOs surveyed this quarter (94 per cent) believe the current levels will continue for at least another year,” Mr Skinner said.


“We’re currently in the midst of the biggest structural shift our economy has seen in the last thirty years. Research from Deloitte Access Economics shows that economies in the resources driven regions of Australia are surging ahead with growth levels that have approached those of China, while the south eastern corner of the country is seeing growth rates of less than 2 per cent.”


“This imbalance has presented a huge challenge for a large portion of the economy – both sectors and States. However, we’re shifting gears. Deloitte Access Economics’ research also indicates that the resources sector-fuelled capital investment that has been the primary driver of Australia’s economic growth in recent years will flatten out by mid-2014, with a decline expected thereafter. After that, we need to see significant growth in exports and the non-resource sectors.”


However, Mr Skinner said that while the economy could no longer rely on capital expenditure to fuel growth beyond 2014, the survey results indicated investment activity would continue to increase in the immediate future.


“Around two thirds of the CFOs surveyed said they expected to either maintain or increase their current levels of capital expenditure and, on the face of it, this investment appetite seems to be at odds with activity across the resources sector, with many of the larger players having significantly reined in their previous commitments to future capital investment,” Mr Skinner said.


“This response may well reflect companies delivering on projects already committed to in earlier years, though it may also be signalling the start of the economic recalibration the economy will require as the momentum in resources sector investment slows over the next two years,” he said. “However, the real story behind this apparent positive sentiment towards capital investment from CFOs this quarter will take some time to emerge.”


Mr Skinner said the latest survey revealed the ongoing market uncertainty was the biggest factor impacting capital expenditure plans (35 per cent), but there were a number of recurring themes that were also contributing to this negative sentiment including federal government policy uncertainty (26 per cent), cost of labour (28 per cent) as well as funding availability (21 per cent).


“There’s clearly still a great deal of uncertainty in the global economy and the situation in both Europe and the United States is weighing on many CFOs. It is telling that a potential slowdown in the Chinese economy is now the number one factor influencing CFO optimism (72 per cent).”


Mr Skinner said these concerns might have influenced the Reserve Bank’s cut in interest rates earlier this month.


“It’s clear that once mining investment plateaus the real challenge will be to ensure we are in a position to deliver growth in the sectors that slowed during the resources boom. The recent interest rate cut is a positive step in that direction for industries such as housing and retail,” Mr Skinner said.

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