Weekly economic briefing: CFO sentiment – solid on outlook, positive on risk

The Weekly Economic Briefing is written by two senior Deloitte Economists, David Rumbens from Deloitte Access Economics in Australia and Ian Stewart Deloitte’s Chief Economist in the UK. They provide a personal view on topical financial and economic issues. Subscribe to receive the Weekly Economic Briefing in your inbox!

In this week’s blog:

Australian economic briefing
UK economic briefing
International economic briefing

Australian economic briefing by David Rumbens

This section of the briefing provides a snapshot of key economic data and issues of relevance to Australia.

CFO sentiment – solid on outlook, positive on risk

Deloitte’s latest CFO Sentiment survey and report shows that a strong first half of 2018 for both the global and Australian economies is supporting ongoing positive sentiment among Australia’s CFOs, whose appetite for risk also remains strong.

Key points from the H1 2018 survey include:

  • Just over 75% of CFOs are optimistic about the financial prospects of their company
  • Positive confidence results have now been recorded for five years – since H1 2013
  • Risk appetite remains strong, with a record 64% comfortable with taking on more balance sheet risk (up two points on the previous result of 62% in the last half-year)
  • 42% are interested in taking on risk in the form of additional investment if tax cuts are legislated, while only 11% are looking to pay down debt.

Sentiment among CFOs is strong as strong global economic conditions are flowing through to the Australian economy. Just over 75% are either optimistic or highly optimistic about the financial prospects of their companies and, encouragingly, a larger proportion – 21% compared to 12% six months ago – are at the highly optimistic end. However, trade war developments may have prevented optimism from rising even further. While 40% of CFO respondents felt optimistic about the impact of the US economy on their businesses in the second half of 2017, net optimism about the US has now fallen to 26%.

Investment continues to pick up, supported by strengthening business conditions, rising capacity utilisation and a more positive economic outlook. Overall, 64% of CFOs feel now is a good time to take on risk. As a result, should the proposed corporate tax cuts be legislated, a high proportion of CFOs (42%) are interested in taking on risk in the form of additional investment, while only 11% are looking to pay down debt. Some caution remains however – CFOs are also wary about over-investment in case something tips the scales.

While the investment outlook for companies is picking up, CFOs do not think that the Federal Government should be spending more. In fact, when asked about the budget deficit, a significant 57% felt it would be best to reduce the deficit more quickly.

Chart 1: If corporate tax cut legislation proceeds through parliament, how might you make use of any additional funds? 

CFOs expect both the Australian share market and interest rates will be higher in 12 months. The labour market is tightening and wages are expected to edge up as a result. Consequently, CFOs have revised their expectation of where interest rates might sit in 12 months’ time, with 44% expecting them to be higher, up from 31% in the previous survey.

For more information on the Australian brief, please contact co-authors David Rumbens and Todd Stenner.

UK economic briefing by Ian Stewart

A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. Subscribe to and view previous Monday Briefings at: http://blogs.deloitte.co.uk/mondaybriefing/

Holiday Quiz

Our summer quiz offers a test of your knowledge of holiday-related trivia through an economics lens.

1. What reason does the UK’s Office for National Statistics (ONS) give for the 80% decline in UK residents taking day trips abroad since the 1990s?

A. Better weather in the UK
B. An increase in staycations
C. A decline in ‘booze cruise’ trips
D. Preference for longer holidays

Answer: C. A decline in ‘booze cruise’ trips. UK residents are making fewer day-trips abroad. The ONS think this could be because many of these visits were ‘booze cruises’ – journeys across the English Channel to stock up on alcohol and cigarettes – which are no longer as worthwhile as they used to be. Duty-free sales within the EU ended in 1999, France has been increasing the price of cigarettes since 2000, and in recent years, the pound has fallen in value against the euro.

2. Where was the most popular destination for UK holidaymakers in 2017?

A. Spain
B. France
C. Portugal

Answer: A. Spain. Spain received 13.9 million British tourists in 2017, the same number that travelled to the four next popular destinations combined – France, Italy, Portugal and the US.  The number of holidays to Spain has doubled over the last 20 years while France is one of the few countries we’re visiting less than in 1996. Other destinations that have seen a decline in British tourists over the same period are Turkey, Egypt, Kenya and Tunisia.

3. Where is the cheapest place in the world to buy a McDonalds Big Mac?

A. Ukraine
B. Croatia
C. Egypt
D. India

Answer: C. Egypt. Egypt is the cheapest place in the world to buy a Big Mac according to The Economist’s Big Mac index. The index compares the price of a Big Mac across different countries in order to assess how over/ undervalued the currency is against a range of currencies. A Big Mac costs £3.19 in the UK and just £1.32 in Egypt, suggesting the Egyptian pound is undervalued by 58.6%. The Egyptian pound saw a sharp decline after it was unpegged from the dollar in 2016 at the re-quest of the International Monetary Fund as part of a reform package. In Croatia the burger costs £2.50, in Ukraine £1.44 and in India £1.89. The most expensive country to buy a Big Mac is Switzerland, where it will set you back £4.92, suggesting the Swiss franc is 54.7% overvalued. The Swiss Franc benefits from the nation’s reputation for political and economic stability.

4. How much did the average UK holidaymaker spend abroad in 2017? (The aver-age duration was around nine days)

A. £350
B. £670
C. £940
D. £1,250

Answer: B. £670. Last year the average level of spend by a UK resident taking a holiday abroad was £670. The average UK resident spends £549 by holidaying in Europe and £1,319 in the US. In terms of spending per day, Brazil was the most ex-pensive destination for UK tourists in 2017 at £218 with some North African countries being the cheapest (£19 per day).

5. What, if any, charges do standard debit and credit cards add to payments whilst abroad?

A. Nothing
B. 1%
C. 2%
D. 3%

Answer: D. 3%. According to the BBC, the average charge for using your credit and debit cards abroad is 3% on all spending, plus additional costs for using cash ma-chines. The BBC reports that UK holidaymakers are collectively incurring charges of £1bn a year on overseas spending. This works out at roughly £14 per trip made by UK residents. Figures calculated by FairX show the average fee for withdrawing £50 from a cash machine using a debit card is £2.64 and the average ‘non-sterling transaction fee’ for making a £50 debit or credit card payment is £1.40. Martin Lewis, founder of Money Saving Expert, advises travellers to apply for special cards which have no charge for overseas payments. He also concludes that it is almost always better to make card transactions in local currency rather than paying in sterling. This is because the overseas store/bank is doing the conversion and typically the rates are high.

6. Last year there were 39 million international visits to the UK, the highest number on record and up 25% from 2012. How many trips abroad did UK residents take last year?

A. 14 million
B. 30 million
C. 56 million
D. 72 million

Answer: D. 72 million. UK residents made 72 million visits overseas in 2017, also a new record. They spent a total of £44.8bn, 83% more than was spent by overseas visitors to the UK. Of the international holiday makers visiting the UK, Barclays re-ports that the Chinese have the largest overall budgets, averaging £5,424, nearly £600 of which is typically earmarked for clothes shopping.

7. Employees from which country enjoy the most generous holiday entitlement?

C. France
D. Austria

Answer: D. Austria. Austrians enjoy the most holiday with a statutory minimum of 25 days off plus 13 days of public holidays. Greece and France also have a mandatory minimum of 25 days off but have a lower number of public holidays.  In contrast, Filipinos are entitled to just 5 days in holidays. UK employees get a minimum of 20 days and in the US, there is no holiday entitlement but workers typically take around 15 days.

8. In 2010 there were 490,000 international visits to Iceland, what was the number in 2016?

A. 600,000
B. 750,000
C. 1 million
D. 1.8 million

Answer: D. 1.8 million. Iceland received 1.8 million international visits in 2016 – a 270% increase in six years and a number that is five times larger than its population (340,000). The economy suffered a deep financial crisis in 2008 when many of its banks collapsed along with its currency but is now growing apace, supported in part by its booming tourism industry. The country is popular with tourists who want to see the Northern lights and the scenery that was captured in the Lord of the Rings films. However, according to Trip Advisor, the most highly rated attraction in Reykjavík is the Hallagrimskirkja cathedral which boasts breath-taking architecture and a viewpoint to take in the rest of the city.

9. Of all tourism expenditure by EU citizens, what percentage was on trips inside the EU in 2016?

A. 33%
B. 48%
C. 62%
D. 79%

Answer: D. 79%. In 2016, EU citizens spent 79% of their holiday money within the 28-member states, and 84% in Europe. The next largest recipient of expenditure was America (7%), and then Asia (6%) with 2% of spending in Africa. German tourists accounted for 28% of total EU tourism expenditure.

10. What does the SPF number on your bottle of sun cream mean?

A. The number gives an indication as to the percentage of the sun’s harmful (UVB) rays that the sun cream will block
B. The temperature in degrees centigrade, for which the sun cream is appropriate
C. How many minutes can be safely spent in the sun until the cream needs to be reapplied
D. The skin temperature in degrees centigrade that may not be exceeded for the cream to prevent burning

Answer: A. The number gives an indication as to the percentage of the sun’s harmful (UVB) rays that the sun cream will block. SPF (sun protection factor) is the fraction of sunburn producing UV rays that reach the skin. The reciprocal of the SPF factor on a bottle of sun cream represents the fraction of UVB rays that will reach the skin once the cream is applied. For example, an SPF factor of 15 will filter all but 7% of rays (1/15= 7%), an SPF of 30 will block all but 3% and SPF of 50 will block all but 2%. It can also be thought of as a multiple of the number of minutes you’d have been able to stay in the sun for without burning with no sun cream at all.


The FTSE 100 ended the week down 0.5% at 7,664.

International economic briefing by Ian Stewart

Economics and business

  • The Bank of England (BOE) raised UK interest rates 25bps to 0.75%, the highest rate since 2009, citing very limited spare capacity in the economy
  • The Bank of Japan said it would maintain “extremely low” interest rates for an extended period, countering speculation it would join other major central banks in rolling back crisis-era stimulus
  • Euro area quarterly GDP growth slowed to 0.3% in the second quarter, the slowest pace in two years
  • Spanish GDP growth hit a four-year low in the second quarter
  • The yield on Italian government debt spiked to its highest level since the post-election crisis over concerns about the government’s spending plans
  • The US Employment Cost Index, which measures wages and non-wage benefits, increased by 2.8% in June from a year earlier, the fastest pace in 10 years
  • China urged the US “not to engage in blackmail” after the US president asked his trade advisors to look into more than doubling the proposed tariffs on $200bn of annual imports from China
  • China said it would impose new tariffs on $60bn of imports from the US, should the Trump administration carry out its threat of increasing tariffs on Chinese imports
  • The US pledged to provide $12bn in support for farmers hurt by retaliatory tariffs
  • The US Chamber of Commerce estimates that, if the US government were to support all businesses hit by tariffs, it would cost $39bn a year
  • China’s PMI index of manufacturing activity fell to an eight-month low in July
  • The IMF says China must reform state-owned enterprises in order to boost in-vestment returns and reduce its debt to GDP ratio
  • Apple became the first company to achieve a market capitalisation of above $1 trillion
  • UK credit card spending increased at 9.5% in June from a year earlier, the second fastest pace since the financial crisis
  • The average number of sick days taken by UK workers fell to 4.1 in 2017, the lowest on record

Brexit and European politics

  • The FT reports that the EU is willing to offer the UK a vague blueprint for the future EU-UK relationship if it helps Theresa May win parliamentary backing for the withdrawal agreement and thus avoid a no deal outcome
  • BOE governor Mark Carney said there was an “uncomfortably high” risk of leaving the EU without a deal
  • Qatar has invested £3bn in UK real estate and infrastructure over the past 16 months in a vote of confidence in post-Brexit Britain
  • The EU softened its opposition to the UK’s post-Brexit plan for London’s financial services industry after the UK acknowledged that the EU would retain ultimate control over the City’s access to EU markets
  • British foreign secretary Jeremy Hunt said that the Chinese government is willing to open talks on a trade deal with the UK
  • Mr Hunt also said the UK was currently “heading for no deal [with the EU] by accident”
  • UK trade secretary, Liam Fox, said the chances of a no deal Brexit are 60:40 and that the EU’s chief negotiator has rejected the UK’s Chequer’s proposals simply be-cause, “we have never done it before”.

And finally…

  • Appearing on the hit show ‘Love Island’ could be a more lucrative option than going to Oxbridge. Analysis by Frontier Economics estimates that Islanders can earn £1.1m from subsequent deals compared to a lifetime average return of £815,000 for Oxbridge graduates – no brainer

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