Over the summer, concerns were raised that the Chinese economy – which so many global markets had been looking to for growth – was actually decelerating rapidly. The Shanghai Composite index experienced ‘Black Monday’, plummeting 8.5%, with repercussions felt around the globe. In the UK, the FTSE 100 index had its largest single-day fall since the 2009 global financial crisis.
Was it wrong to bet so heavily on China, and will it mean more upset down the line? According to a survey by Deloitte conducted in the wake of these events, CFOs at major British companies are asking similar questions, with their confidence in the future now shaken.
Tighter controlWriting in The Independent, Ben Chu takes an analytical approach to the study, which he says reveals that “uncertainty has not been so high since before the UK’s economic recovery began in earnest in 2013”.
Chu says that in the survey of FTSE 350 CFOs, 73% answered that the level of financial and economic uncertainty was ‘above normal’, ‘high’ or ‘very high’ – up from 55% the previous quarter. The survey was conducted between 9 and 28 September, with only 49% of CFOs saying now was a good time to invest – a figure that had reduced from 59% the previous quarter.
China is cited as the main cause, but the article highlights that the impact in the UK and US has been limited due to both countries keeping their interest rates low. Ian Stewart of Deloitte told the newspaper: “Falling corporate risk appetite and sentiment suggests that the Federal Reserve and Bank of England have been absolutely right to maintain interest rates at ultra-low levels.
“CFOs still see tighter monetary policy as the number one threat to their business.”
The Independent view
The bigger pictureOther results from the survey were discussed by Sinead Moore for financial news site, Economia. She says that 60% of CFOs thought the slowdown in China would have “a negative impact on their business in the next 12 months”.
But she also highlights worry caused by reduced expectations in hiring and capital expenditure. Just 48% of CFOs said that hiring will increase over the next 12 months, down from 70% in the second quarter, with “the prospect of higher interest rates, the weakness of emerging markets and geopolitical risks, and deflation and economics weakness in the eurozone” also cause for concern.
However, the survey showed CFOs to be confident with regard to the cost and availability of credit. Of those asked, 84% believed that new credit is cheap, with 79% describing it as readily available. On inflation, 64% said they expected it to be between 1.6% and 2.5% in the UK in two years’ time.
Economia comment
Not all bad?Another financial news site, Consultant-News, echoes many of the statistics highlighted by Economia, but differentiates between the economic view of the UK itself and abroad. The article quotes Ian Stewart as saying: “The firms on the CFO Survey panel are large and have heavy overseas exposure, with more than half of their revenues coming from outside the UK … While external risks are centre stage, CFOs are positive on prospects for the UK economy.”
David Sproul, also of Deloitte, agrees. “The UK economy is in pretty good shape,” he says. “Low inflation and rising pay have rebooted consumer incomes.”
Sproul adds that we “should not overdo the gloom on the external environment … The outlook for emerging markets has softened, but the US is seeing a decent recovery, the euro area is growing again and the pace of activity seems likely to quicken into 2016.”
Consultant-News opinion
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