TORONTO, ONTARIO -- (Marketwired) -- 04/03/13 -- The state of the world's major economies continues to cause concern among North American chief financial officers (CFOs), even as they report an improved level of optimism about their companies' prospects compared to the final quarter of 2012. Those concerns have largely shifted, however, from the risk of economic crises or collapse to fears of further stagnation, leading to restrained expectations for sales and domestic hiring this year, according to Deloitte's Q1 CFO Signals survey.
The quarterly survey, which tracks the thinking and actions of CFOs representing North America's largest companies averaging more than $5 billion in annual revenue, saw net optimism (the difference between the percent of CFOs expressing rising and falling optimism) increase after two dismal quarters. Led by CFOs in the United States, net optimism rose from -11 last quarter to +32 this quarter, but Canadian CFOs were more modest in their expectations, with their net optimism recovering only slightly, to +7 from -6 last quarter and still well down from its peak of +57 at the same time last year.
"Canadian CFOs have traditionally expressed higher net optimism than their U.S. counterparts, so this quarter's findings mark a significant change from the past," said Bill Cunningham, co-leader of Deloitte Canada's CFO program. "Although sales growth expectations in Canada continue to outpace those in the United States and earnings growth expectations are roughly the same, Canadian CFOs are more muted when it comes to such things as dividend growth and capital investment."
Public policy uncertainty seems to be a major drag across North America at the moment, with more than 90 per cent of CFOs saying that current and recent policy decisions/debates - ranging from debt ceiling and sequestration policies to possible defence cuts - are having at least some impact on their companies' plans. But it is tax policy that appears to be having the most substantial impact across industries, with some 75 per cent of CFOs claiming at least some impact, and 40 per cent indicating substantial or strong impacts.
The potential detrimental impact of government actions on a stagnating global economy tops the list of most worrisome risks for CFOs, particularly the possible effects of the government's taxing and spending policies on consumer demand and the broader economy. More than half of all CFOs surveyed see the current state of the North American economies as the main driver of growth, but a quarter of them also consider it the top impediment. The economic situation in Europe is also seen as an impediment to growth by 23 per cent of CFOs, a figure offset by a similar level of optimism about the positive effect of economic growth in China.
Nevertheless, some CFO expectations did rebound this quarter. For example, Canadian CFOs raised their expectations for year-over-year earnings growth to 11.8 per cent, in line with North American expectations of 12.1(i) per cent, while their expectations of a 7.4-per-cent jump in sales outpaced the North American figure of 5.4(i) per cent. But Canadian CFOs were much more restrained when it comes to capital spending, predicting a 9.4-per-cent drop from last year, compared to the expected 10.9-per-cent increase in the United States. Domestic hiring expectations did recover significantly among Canadian CFOs, however, improving to 3.5 per cent from just 0.2 per cent last quarter, even as a substantial proportion - 27 per cent - of North American CFOs now expect cuts in domestic hiring.
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