CFOs optimism wanes amid rising geopolitical tension, inflation and supply chain issues

CFOs are less optimistic about the state of the economy and future business prospects entering 2022 compared to the beginning of last year, according to Deloitte’s latest CFO Signals survey.

Only 38% of CFOs are more optimistic about their company’s financial prospects compared to 57% at the start of 2021.

Inflation, geopolitical tensions, government policies and regulations are among the top external concerns for senior finance leaders, with the emergence of new Covid-19 variants also raising concerns.

The myriad of headwinds has lowered CFOs year-on-year growth expectations for earnings, which have dropped to 9.2% in the first quarter (Q1) of this year, down from 9.6% recorded in the previous quarter, as well as capital spending expectations which have fallen from 5.8% to 5.3% over the same period.

Unsurprisingly, confidence in the world’s economy has also fallen. The recent events in Ukraine and heavy economic sanctions placed on Russia, mixed with the ongoing challenges around supply chains has seen inflation and interest rates rise, creating a challenging backdrop for finance teams.

In fact, only 36% of CFOs expect North America’s economy to be better a year from now, down from 45%. Optimism for Europe’s economy among senior finance leaders is waning too, with only a quarter of CFOs surveyed (26%) believing things will improve over the next 12 months.

Steve Gallucci, national managing partner and global CFO program lead at Deloitte, said the lack of optimism is not surprising.

“CFOs’ drop in their outlook for the North American and European economies a year out and a decline in their YOY growth expectations for earnings and capital investment are indicative of the current business environment and the challenges they’re up against.”

Value in the IT function

The move to remote working at the beginning of the pandemic has highlighted the value in the company’s IT function. While it is clear organisations are taking steps to gain more value from their function and services, there is still a lack of clarity on how to measure the function’s effectiveness.

The Deloitte survey found CFOs estimate their organisations overall IT spend is 3.1% of its annual revenue with 52% going towards maintaining day-to-day operations. This is split between enhancing existing capabilities and operations (26%) and creating new capabilities (22%). However, on average, only 23.7% of CFOs said their IT spend goes toward agile initiatives.

“Investment in IT infrastructure is more important than ever,” says Khalid Kark, managing director of US CIO program at Deloitte. “CFOs acknowledge the critical role IT plays in keeping day-to-day systems running smoothly and enhancing financial performance and managing cyberthreats.”

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