Deloitte, as every year, recently presented the results of its survey (Deloitte CFO Survey) in the form of a report. The document focused on the analysis of data – opinions and expectations, collected from over 620 financial directors from listed and commercial companies from 15 Central European countries – to provide insight into the most important topics and trends currently affecting business. The Deloitte CFO Survey took place between October and December 2023.
What topics were discussed at the Deloitte CFO Survey?
Deloitte’s research provided an overview of CFOs’ financial prospects and their views on the factors that will most likely impact company performance in 2024. Issues such as inflationary pressure, strategic priorities and financing issues were discussed. The report provides insight into current business issues as well as the collective thinking of financial leaders from various countries in the Central European region.
What conclusions can be drawn from the Deloitte CFO Survey report? What can you expect in 2024?
The Deloitte CFO Survey report from 2023 presents much more optimistic conclusions than the corresponding document from 12 months ago – when the economic environment changed radically with Russia’s invasion of Ukraine. Although financial directors in 2023 were still concerned about the future and were not willing to take risks, at the same time they expect fruitful investments, a decline in unemployment, and an improvement in the financial prospects of their enterprises. This year’s Deloitte CFO Survey report shows a clear improvement in sentiment (in many areas). The following industries are expected to experience dynamic growth throughout 2024: life sciences, technology, media, and communications. The authors of the report recommend ongoing monitoring of economic growth in Central Europe – this should be accompanied by a careful risk assessment and a strategic approach to cost management.
Report methodology from Deloitte
More than 620 CFOs from 15 Central European countries participated in the Deloitte CFO Survey: Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Czech Republic, Estonia, Latvia, Lithuania, Poland, Hungary, Kosovo, Romania, Serbia, Slovakia, Slovenia. Both countries that belonged to the „euro zone” and those that had their own currency were discussed.
The Deloitte Central Europe CFO Trust Index consists of three partial indicators reflecting the attitude of CFOs to various issues. Talking about:
The Economy Confidence Index, concerning economic processes. It is based on questions about economic growth, unemployment, and the consumer price index (CPI).
The Business Environment Confidence Index, which asks questions about risk, operating costs, attractiveness of various sources of financing, and opinion on the mergers and acquisitions market.
The Company Perspective Index, based on questions about the future of a given organization and its financial situation (revenues, margins, capital expenditure, debt service), and the expected level of financial leverage.
The Economy Confidence Index – summary
In 2023, there was a significant increase in GDP in Central Europe – it currently amounts to 1.1% (for comparison: a year earlier it reached 0.33%). What do CFOs expect in the coming year 2024? Almost 1/3 of surveyed CFOs expect only moderate GDP growth (up to 2.5%). The lowest GDP growth was recorded by the economies of the Czech Republic, Estonia, Slovakia and Slovenia – countries with the highest negative net balance (i.e. the difference between the percentage of respondents expecting a high and low level of GDP).
When it comes to unemployment, most CFOs surveyed have positive feelings; they expect economic recovery – only 38% of financial directors expect an increase in unemployment (68% a year earlier). The worst prospects are for entrepreneurs from Estonia and the Czech Republic. Interestingly, even in countries with moderately developed economies (Bosnia and Herzegovina, Croatia, Hungary) unemployment is expected to decline. Such a surprising conclusion may be related to the dynamic development of their economies, GDP growth and aging of society.
From 2022, we are witnessing alarmingly high price increases. That year, as many as 91% of respondents expected an increase in CPI. Currently, only 55% of surveyed CFOs expect inflation to increase in their countries. Financial directors are cautious about all trends, price stability, and macroeconomic forecasts of financial institutions. In 2024, prices in Central Europe will most likely grow at a similar pace – but much slower than in the previous turbulent years. Currently, CFOs from Bosnia and Herzegovina, Croatia, Bulgaria, Serbia, Romania, Poland and Slovakia especially expect an increase in CPI.
The Business Environment Confidence Index – is it worth taking risk in business today?
In 2024, many CFOs still show financial and economic uncertainty – this percentage has decreased slightly compared to the previous year (currently 51% of respondents, in 2023 – 61%). As many as 94% of surveyed CFOs expect an increase in labor costs.
It is expected that the main costs of enterprises from Central Europe will be related to labor costs. Most likely, all categories of expenses related to business activities will increase. Most CFOs assume that only regulated factors – VAT and corporate income tax – will not change. Importantly, persistent inflation may result from entrepreneurs’ inflation expectations, and not from actual market factors of price increases.
The global economy is slowly recovering after a record-breaking 2023, when many companies struggled with rising capital costs and fears of recession in major European economies (e.g. Germany). In 2024, the mergers and acquisitions rate remains relatively low – 45%. The prevailing opinion is that the coming year is not the right time to take greater risks – as many as 3/4 of respondents believe so. The greatest sources of risk for business development will probably be: increasing business regulations, low availability of qualified specialists, geopolitical tensions, and capital shortage. Financial directors pay less attention to risks related to falling demand, currency fluctuations, and cybersecurity. For both exporters and companies operating only on the domestic market, the exchange rate is important. When it comes to climate change, the vast majority of CFOs do not attach importance to it – they assume that this issue will not affect the operations of their companies.
In 2024, the most attractive source of financing is internal financing.
The Company Perspective Index – what do companies’ business prospects look like?
Currently, more and more CFOs think more optimistically than a year ago – now it is 36%, and in 2023 – 25%. It is expected that the most dynamic growth in 2024 will be recorded in natural sciences, technology, media and communications. Additionally, these same sectors are likely to enjoy continued revenue growth and operating margin expansion.
Cutting costs is important to the vast majority of surveyed CFOs (as many as 1/4 of them consider it a priority for 2024). The economic and financial situation seems to be returning to the state from before 2020 – a lot depends on the industry. The life sciences sector expects the largest increase in the number of employees and an increase in debt (this is the result of increasing pressure on related companies to introduce innovations to the market).
Debt reduction is on the agenda for most industries – for the first time since 2022. The construction sector is particularly eager to eliminate debt. Most CFOs (58%) are concerned about the ongoing costs of employment services. They are concerned about interest rate increases in recent years and the resulting increase in the cost of capital.
The most important corporate strategies for 2024 will be the pursuit of lower costs and higher economic growth (organic growth, growth in existing markets). When it comes to EDG reporting, only 3% of respondents indicate that it is their priority.
Summary
The Deloitte CFO Survey report from 2023 promises greater optimism than in previous years. Financial directors plan to slowly develop their companies while still monitoring the market situation. Caution and uncertainty continue to dominate business.