Weekly economic briefing: Survey says CFOs are optimistic despite external risks and uncertainty

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.

Survey says CFOs are optimistic despite external risks and uncertainty

David Rumbens was interviewed by SkyNews last week about the latest CFO Sentiment Report. To view the interview, please click here.

The latest CFO Sentiment report finds that confidence amongst Australia’s CFOs is strong – and continues to improve alongside the positive fortunes of the global economy. Key points from the survey include:

  • 83% of CFOs are optimistic about the financial prospects of their companies
  • A net 25% are more optimistic than six months ago, up five percentage points
  • Net positive confidence results have now been recorded since H1 2013
  • Uncertainty still prevails – 73% identified ‘above normal’ to ‘very high’ levels of uncertainty, slighly down on the record survey high of 78% in H2 2016

Higher confidence among CFOs has been driven by improving macroeconomic conditions. Higher rates of economic growth in Asia, an improved outlook on the European and US economies, as well as low interest rates and a competitive Australian dollar are factors supporting the optimism of CFOs.

The latest Federal Budget is a plus for CFOs. 84% of CFOs believe that the tax reform measures announced as part of the May Budget are an important step in promoting economic growth. CFOs are increasingly looking to government to ensure that progress made on tax and other reform areas will continue as a catalyst for continued economic growth.

CFOs believe that tax reform is key to promoting economic growth. 93% of CFOs are looking to government to ensure that progress already made on tax and other reform areas will continue as growth catalysts.

CFOs expect interest rates to be lower for longer. While the RBA has kept the cash rate on hold at 1.5% since August last year, CFOs have shifted their expectation to one where the next move may be down. Now, 58% expect little rate change, 40% expect further falls, and only 1% expect a rise in the next 12 months. Six months ago, 42% expected higher rates in 12 months’ time.

Favourable conditions are giving CFOs an improved appetite for risk. The share of CFOs who believe now is the right time to take on more risk to expand has edged towards 50% (see chart). This is despite the fact that CFOs still face an external environment which is considerably more uncertain than normal.

Is it a good time to be taking greater risk onto your balance sheet?

And when it comes to external risks, Trump doesn’t phase our CFOs. Nearly 70% of CFOs think the US President will have no impact on their businesses over the short term, while nearly half think the same will hold true over the longer term. On the other hand, interest rates, China’s economy and house prices remain key concerns for future scenario planning for CFOs.

Wellness is increasingly coming into focus. Boards and executives are becoming more informed on the impact of employee wellbeing. CFOs consider employee wellness to be essential for building resilient, successful organisations and to enhance employee engagement. Over 70% of CFOs agreed or strongly agreed that employee wellness is considered a strategic priority within their organisation. CFOs are also interested in the impacts of innovation on their business across areas such as the disruptive effect of automation, big data and other technologies.

All in all, Australia’s most senior finance executives are more optimistic than late last year and comfortable with facing uncertainty. Risk appetite is up, innovation and technology remain keys to productivity improvements, and workforce wellness has emerged as an important focus.

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


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/

Summer Reading List

  • With the holiday season almost upon us we are launching our summer reading list. The Economics Team read dozens of articles to come up with our top six picks for summer reading. All are available free and on-line. You can save these articles on your iPhone or iPad’s reading list by opening the links on Safari and tapping on the share arrow next to the address bar. To print these articles please use the print icons, where available, on the webpages to ensure the whole article comes out. The Monday Briefing will continue to run throughout the summer.
  • Since the Industrial Revolution each generation in the UK has been around 25% better off than their parents. Rising prosperity has been driven by rising productivity – producing goods and services more efficiently. The standstill in UK productivity since the global financial crisis poses a power threat to the idea of rising prosperity across generations. This speech by the Bank of England’s Chief Economist, Andy Haldane, provides a powerful account of what has gone wrong (19 pages and 17 pages of charts): http://www.bankofengland.co.uk/publications/Documents/speeches/2017/speech968.pdf
  • In recent years the US has witnessed a strange phenomenon, as young American men opt out of work, or, in some cases, never start work. In the last 15 years the employment rate for men in their twenties without a college education has dropped from 82% to 72%. Young men are delaying key life events, such as buying a house and getting married, in favour of staying at their childhood homes and spending money and time on leisure activities. This article examines the trade-off between returns from work and returns from leisure and asks whether the lure of computer gaming may explain why so many young American men are forsaking work (10 pages): https://www.1843magazine.com/features/escape-to-another-world
  • Economics and economists have had a mixed press in recent years. The financial crisis and its aftermath highlighted the fallibility of economic forecasts. Some claim that in economics “you believe what you want to believe”. This seems harsh. Nonetheless, we enjoyed this article which draws parallels between economics and religion – “its moral code promises salvation, its high priests uphold their orthodoxy. But perhaps too many of its doctrines are taken on faith” (6 pages): https://www.theguardian.com/news/2017/jul/11/how-economics-became-a-religion
  • US corporates have amassed $2 trillion of cash as profits outstrip their own spending. What should companies do with this surplus cash? This article contrasts two tech giants, Apple and Google, and their approaches to distributing cash (6 pages): https://www.theatlantic.com/business/archive/2017/07/apple-google-capitalism/532995/
  • What will the world economy look like in 2067? This article by Kaushik Basu, the former Chief Economist at the World Bank, thinks global GDP growth could be running as high as 20% per year in 50 years’ time. Basu thinks the digital revolution could yet transform growth rates. Among all the current gloom about debt, demographics and low productivity it’s a relief to find an economist who thinks the future may be brighter (3 pages): https://www.brookings.edu/opinions/the-global-economy-in-2067/
  • The ‘gig economy’ is a hot topic. Some charge that it is creating a new world of low skilled, low paid and insecure work; others believe it is enabling more people to combine work with other activities and responsibilities and, in the process, creating valuable new services. This fascinating New York Times article addresses the changing nature of work in the UK, drawing on the experience of London Uber and black cab drivers to explore issues of “immigrant versus native, old versus new, global versus national” (10 pages): https://www.nytimes.com/2017/07/04/world/europe/london-uk-brexit-uber-taxi.html

PS – Last week the independent Office of Budget Responsibility delivered a powerful rebuke to those seeking to “end austerity” – and a fillip to the government’s programme of debt reduction.  The OBR said that the UK needed to make more use of current growth to reduce public sector borrowing. The OBR stress tested the government’s finances using the same methodology that will be used to test banks’ balance sheets and found that a recession would lead to an alarming and rapid rise in public sector indebtedness. Quantitative Easing and heavy issuance of inflation linked bonds have made the national finances significantly more vulnerable to higher interest rates and inflation than before the financial crisis. Robert Chote, chairman of the OBR, noted said the UK’s public finances needed to be better prepared, “for the nasty surprises that come down the road”. Sir Charlie Bean, a member of the OBR said, “Inevitably there will be some bad surprises . . . We don’t necessarily know what they will be but you sure as hell should prepare for bad news at some point”.


The UK’s FTSE 100 equity index ended the week up 0.3% at 7,378.

Expectations of a US interest rate rises eased following the release of weak US economic data. The euro area recovery continued to strengthen.

International economic briefing by Ian Stewart

Economics and business

  • OECD leading indicators signalled “tentative” slowdowns in the US, the UK and Russia
  • Lenders tightened access to consumer credit over the past three month, according to the Bank of England’s (BoE) quarterly credit conditions survey
  • The BoE also reported that in the three months to June credit card defaults rose at their fastest pace in 8 years
  • The UK’s Prudential Regulation Authority said they have seen a potential “return to the punchbowl”, highlighting concerns over “a shift in credit risk appetite” as banks loosen internal controls
  • UK household spending on recreation and culture fell for the first time in four years during June, according to Visa
  • UK unemployment fell by 64,000 to 4.5%, its lowest level since 1975
  • The French Prime Minister, Edouard Philippe, said he is considering cutting taxes for the wealthy to attract entrepreneurs and investors
  • The Bank of Canada (BoC) raised interest rates for the first time in seven years
  • US inflation fell more sharply than expected, to 1.6% in May
  • The US will quadruple its crude oil exports to volumes larger than those of most OPEC members by 2020, according to a consultant firm PIRA Energy
  • China is sending troops to its first overseas military base in Djibouti in East Africa
  • Euro area industrial activity grew at its fastest pace in nearly six years
  • Royal Bank of Scotland reached a £4.2bn settlement deal with the US Federal Housing Finance Agency over the mis-selling of mortgage-backed securities
  • Angela Merkel and Emmanuel Macron met in Paris in a bid to tighten Franco-German ties and reinvigorate EU integration
  • The French and German leaders announced they will work together to develop Europe’s next generation of fighter jets
  • François Villeroy de Galhau, France’s top central banker, appealed for Germany to loosen fiscal policy to boost euro area growth

Brexit and European politics

  • Tony Blair said that the EU might concede some reductions on free movement of people to help the UK to stay in the Single Market
  • The FT reports that the Conservative Party’s backbench 1922 committee has sent the Prime Minister a message supporting her in staying on and delivering Brexit in March 2019
  • France hopes that Brexit will weaken London’s role as a financial centre, according to the City of London’s envoy to the EU. In a leaked note Jeremy Browne said French authorities were seeking “disruption”
  • The UK Government conceded for the first time that the UK has financial obligations to the EU that will outlast its membership
  • President Donald Trump vowed to sign a “very big, very powerful” UK-US trade deal, and added it would happen “very, very quickly”
  • The number of tourists coming to the UK rose by almost 10% in the year to Q1
  • Three UK government papers on Britain’s position on nuclear issues, judicial proceedings and EU agencies sought to highlight the risk to the EU of no transition deal
  • The French Prime Minister, Edouard Philippe, pledged lower taxes for banks and less red tape to attract financial services companies from London
  • Almost one thousand solicitors in England and Wales registered in Ireland during the 12 months after the EU referendum result
  • JP Morgan announced it will move hundreds of people from the UK to the EU in preparation for Brexit
  • The European Securities and Markets Authority (ESMA) have said trading venues and investment firms will have to set up extensive operations in the EU
  • The ESMA added senior staff with “effective decision-making powers” should be in the single market
  • Graduate confidence has fallen for the first time in five years due to fears of fewer job opportunities post Brexit, according to High Fliers Research
  • King’s College London revealed it is planning to open a new campus in Germany

And finally…

  • A workman fixing an ATM in Texas was saved by police officers after getting stuck in the room behind the machine and sending ‘help me’ notes through the ATM receipt slot – A Trapped Man

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