As 2020 commences, chief financial officers are sensing economic troubles ahead.
In Deloitte’s latest quarterly CFO Signals survey of CFOs at major North American companies, released today, 97% of respondents said an economic downturn would commence in 2020 or had already begun. Eighty-five percent of respondents anticipate a slowdown on the horizon, while 12% say it has already begun. Although CFOs are anticipating an economic downturn of some kind, they’re not expecting a full-blown recession: Only 3% of CFOs said they expect a recession in the coming year, which is markedly down from 15% at the beginning of 2019.
For the CFOs surveyed, macroeconomic concerns accompany worries about their individual companies. For the most recent quarter, CFOs’ year-over-year expectations for revenue growth hit a three-year low of 3.7%. Earnings growth sits at its second-lowest level in CFO Signals history (6%), while hiring growth slid to 1.1.%, its second-lowest level in around six years.
Some 14% of survey respondents added that they have seen signs of downturn in their company’s operations. CFOs are taking defensive measures to stave off financial struggles. And 82% of respondents said they’d taken at least one defensive action in response to or in anticipation of a downturn. In particular, 57% said they had made discretionary spending cuts, while another 35% said they had reduced headcount. Focuses on cost reduction have hit their highest level in about six years, the survey found.
As they await a downturn, CFOs are expecting the heat to be felt most strongly in Europe and China. While 69% of those surveyed called North American economic conditions good, that number is only 7% in Europe and 18% in China, with the latter near a three-year low amid concerns about the U.S.-China trade war. The trade war is the No. 1 cause of concern for CFOs, with 48% citing trade policy and tariffs as the risk that worried them most.
In the past year, the U.S. and China have slapped levies on hundreds of billions of dollars worth of goods. However, there appears to be some positive development on the trade war front: In mid-December, the U.S. and China confirmed that they had reached a partial trade deal. President Donald Trump called off a 15% tariff on hundreds of billions of dollars’ worth of Chinese goods, including footwear, apparel and accessories, which had been scheduled to take effect on Dec. 15. As part of the limited agreement, the U.S. has asked that China purchase greater quantities of agricultural and other products. Negotiators have also sought better protection for U.S. intellectual property and wider access to China’s financial services sector. For now, the U.S. has imposed a 25% tax on roughly $250 billion worth of Chinese products and a 15% levy on another $112 billion in Chinese goods.
Despite Trade Woes, Many Companies Aren’t Taking Action to Address Tariffs
This Is What the World’s CEOs Are Most Worried About Heading Into 2020
Economist: Little Evidence Economic Growth, Consumer Spending Will Gain Momentum in Early 2020