The New Normal is here to stay: CFOs will need to learn to live with the increased level of uncertainty

Deloitte Belgium publishes results of its Belgian CFO Survey for the third quarter of 2012

Brussels, 30 October 2012 – Today, Deloitte announces the results of its quarterly Belgian CFO Survey, conducted between 13 September and 8 October 2012. The survey reveals that CFO confidence in the financial prospects of their organisation has further recovered somewhat from the extreme lows of the beginning of the year, but remains depressed. CFOs do not expect the economy to pick up quickly and close to 50% of them do not expect growth before the first half of 2014. Moreover, almost half of CFOs are negative on the way the federal government is currently setting financial and economic priorities. This is a clear sign of warning in the context of the discussions around the budget deficit that are currently taking place. With this 15th edition of the Belgian CFO Survey, Deloitte also takes the opportunity to look back at the past 3 years in this report, and gives an overview of the trends and noteworthy events for Belgian CFOs over the past years. When the first edition of this CFO Survey was released at the end of the first quarter of 2009 coming out of the recession, CFO optimism was low but still significantly higher than it is today, or even has been most of the past year.

High level of uncertainty - Cost reduction as major priority

The economic and financial environment remains unpredictable. As in the previous quarters, 80% of CFOs report the general level of uncertainty is high and above what used to be normal levels, and this is not likely to improve in the future. Corporates will need to learn to live with this increased level of uncertainty.

Thierry Van Schoubroeck, Partner at Deloitte Belgium and responsible for this quarterly survey, indicates: "In this uncertain context, CFOs remain pessimistic about the financial prospects of their own organisations. The focus is on costs. Cost cutting and increasing cash flow have become even stronger priorities in the course of the year – CFOs for who cost reduction is a major priority has never been higher in the past two years."

80% of Belgian CFOs have revised investment plans in response to uncertainty on economic recovery or anticipated weakening demand in the market in Belgium or abroad. Uncertainty about the Eurozone has decreased the past quarter: only a very small minority thinks that it is likely that one or more countries will leave the Eurozone the next 12 months. Few CFOs have effectively prepared for a member state possibly leaving the Eurozone.

Recovery will be weak and slow: the timing of the recovery is the CFO's prime concern

The economy is not likely to take up quickly. Growth expectations for the Eurozone in general and Belgium in particular have been revised downwards for 2012 but also for 2013. Close to 50% of CFOs do not expect growth before the first half of 2014.

The timing of the recovery is the CFO's prime concern, next to safeguarding their competitive position in the market. New technologies change the basis of competition and drive new business models to which companies will need to respond. The impact of the federal government's financial and economic policies on the competitive position completes the top three concerns. Almost half of CFOs are negative on the way the Di Rupo government is currently setting financial and economic priorities – as opposed to 20% who are positive. This is a clear sign of warning in the context of the budget discussions that are currently taking place.

Availability of bank borrowing is at lowest level in the past 3 years, Q3 financials are behind budget

Interest rates are low and create a favourable financing environment. Corporate debt is at present considered a very attractive means of funding for corporates, and much more attractive than bank borrowing. Van Schoubroeck: "Although CFOs see credit as being cheaper than at almost any time in the past 3 years, the availability of bank borrowing has decreased significantly and is now at the lowest level in three years. But very few CFOs report to have cut back on investment plans because of lack of availability of external financing. CFOs see the unpredictable financial and economic situation as the biggest factor constraining investment."

Third quarter financials are behind budget for 45% of survey respondents, somewhat better than the 57% reported at the end of the second quarter. Looking forward toward the end of the year, no further improvement is expected: 46% expect their organisations will not make the budget – which would be similar to last year's results.

Looking back: CFO optimism was low in the past – but still significantly higher than it is today

The first edition of the Belgian CFO Survey was released at the end of the first quarter of 2009. The economy had just come out of the recession and the financial system had been prevented from collapsing. CFO optimism was low – but somewhat surprisingly still significantly higher than it is today, or even has been most of the past year.

Throughout 2009, CFOs became somewhat more optimistic about the prospects for their own companies. But there was no expectation for a strong recovery and CFOs expected activity in their own markets to remain sluggish throughout 2010. Financial conservatism and focus on cost management was on top of the agenda, and CFOs seemed to think these trends were there to stay. Thierry Van Schoubroeck confirms they were right: "Three years later, this 15th edition of the survey can only confirm this is the case, with cost control and cash flow management as top business priorities. The percentage of CFOs for who cost reduction is a major priority has never been higher in the past two years."

Confidence steadily grew in 2010: the outlook for emerging markets was generally seen as positive and Germany's economy powered ahead. Unfortunately, the positive trend reversed in the first quarter of 2011: the increased uncertainty in the global political and economic forum, fuelled by the crisis in the Middle-East and the nuclear crisis in Japan led CFOs to adopt an increasingly cautious position. Van Schoubroeck : "By the end of 2011 CFO optimism decreased to unprecedented levels".

In 2012, approaching the present day, the euro area crisis intensified again, driven by the political instability in Greece and market concerns over Italian and Spanish solvency. Although the European Union agreed to bail out Spanish banks, levels of financial and sovereign stress remained elevated.

International CFO Outlook: more optimism abroad?

The ongoing level of economic and financial uncertainty is leaving its marks across the globe. The trends we have witnessed in Belgium over the past few years are very similar to the trends in other geographies. Continuing worries associated with the Eurozone debt crisis, fears of potential slowdowns in China and India, and renewed concerns about the U.S. economic situation collided to make CFOs on different continents rethink their positive vibes in the second quarter of 2012.

Since the beginning of the survey in North-America, despite their worries about worsening conditions in Europe, global economic deceleration, slow growth at home, and governments' struggles to stem the fallout and promote growth, CFOs in North America remained more optimistic …until the last quarter. This quarter's findings solidified this view, recording the sharpest decline in expectations seen in the two-and-half-year history of the survey. The UK, however, is characterized by a pickup in business confidence this quarter: spirits seem to have been lifted by the recent promise of more aggressive action from the Federal Reserve to support growth and from the European Central Bank (ECB) to strengthen the single currency.