U.S., European economic woes temper near-term CFO expectations: Deloitte

Slightly lower projections for hiring
|hrreporter.com|Last Updated: 01/25/2012

The spillover effect in Canada due to the United States economic downturn, economic turmoil in Europe, the impact of exchange rates and international trade policies, and the availability of capital for businesses are some of the main concerns of Canadian CFOs in the fourth quarter, according to a Deloitte CFO Signals survey.

While CFOs in Canada and the U.S. share many of the same perceptions about the economy and its effect on their businesses, Canadian CFOs are becoming less optimistic about what might happen over the next six months. Net optimism among Canadian CFOs dropped to four percentage points in the fourth quarter, down from 22 percentage points the previous quarter.

More than one-quarter (28 per cent) of Canadian CFOs expect worse economic conditions in the first half of 2012 compared to 12 per cent of CFOs in the U.S.

"There appears to be a growing concern that Canada may feel more of the effects of the global economic downturn in 2012 than has been the case to date," said Trevor Nakka, co-leader of Deloitte Canada's CFO program. "Reduced optimism is translating into CFOs establishing plans to manage and protect against lower year-over-year sales gains and earnings growth for Canadian companies. Top of mind for CFOs are careful management of domestic hiring in many parts of Canada, reductions in discretionary expenses and managing the cost of capital."

CFOs in both countries consider social policy and spending to be their top concern in the fourth quarter, but while U.S. CFOs see persistent unemployment as their next highest challenge, those in Canada are more concerned about environmental policies, such as regulations and carbon reporting, and capital cost and availability.

Canadian CFOs are only half as likely as those in the U.S. to consider inflation a significant concern in 2012, but six times as likely to be concerned about international trade policy, found the survey of 84 North American CFOs.

In response, CFOs are "striking a cautious tone" toward growth and hiring plans for the coming year, said Deloitte. As a result, they are tempering their expectations for year-over-year revenue growth (6.3 per cent this quarter versus 6.8 per cent last quarter) and their projections for domestic hiring (one per cent from 1.2 per cent last quarter; in Canada, the figures are just 0.7 per cent, down from 1.9 per cent last quarter).

The outlook on earnings growth has remained relatively steady among CFOs in both countries, with a modest increase in the U.S. (10.9 per cent versus 10.5 per cent last quarter) and a modest decrease in Canada (7.4 per cent versus 8.0 per cent last quarter).

"With few CFOs expecting economic conditions in North America to improve significantly in the first half of 2012, companies seeking earnings growth appear to be focusing more of their efforts on new markets, particularly foreign ones," said Dick Cooper, co-leader of Deloitte Canada's CFO program. "This growing emphasis on foreign markets is expected to lead to more offshore hiring in the near term but only limited gains in domestic hiring."

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