European CFOs’ forecast far gloomier than that of US counterparts

Despite a world economy often described as inescapably interconnected, European and US CFOs appear to possess significantly different views of the next 12 months in terms of employment and other indicators.

The mood is far gloomier in Europe than in the United States, although optimism for their own companies and the world economy dropped significantly amongst CFOs in both locations in a second-quarter 2012 survey conducted by Financial Executives International and Baruch College’s Zicklin School of Business.

European CFOs predict double-digit unemployment in their home countries in 12 months, and largely expect no near-term hiring of additional staff at their companies, according to the survey.

US CFOs, who are keeping a cautious eye on Europe’s troubles, expect unemployment to fall in the US. A majority don’t believe the struggling European economy will be enough to keep them from adding staff.

The mean prediction of CFOs in Europe for non-farm unemployment in their home country was 9.3% for six months from now, rising to 10.3% one year from now. The average unemployment rate forecast by US CFOs for the United States was 8.1% for six months from now and 7.8% for one year from now.

In terms of staffing, almost two-thirds of European CFOs (64%) said they do not plan to hire additional staff at their companies in the next six months. Just one-quarter plan to hire more workers during that time.

US CFOs presented a much brighter hiring forecast, with 33% predicting they will not hire additional staff at their companies during the next six months, and 58% saying they plan to add staff.

Divergent predictions for the next 12 months were seen across a wide range of business indicators in addition to unemployment. Those predictions, taken as an average on each indicator, include:

• European CFOs barely expect a net earnings increase at their companies over the next 12 months (0.1%). US CFOs forecast a 15% net earnings increase.

• The 2% revenue increase forecast by European CFOs was dwarfed by the 11.1% rise expected by US CFOs.

• European CFOs expect capital spending to rise 1.8%; US CFOs predict a 7.1% increase.

About the only good news for European businesses compared with their US counterparts came in health-care costs. US CFOs, on average, expect an 8.8% rise in the next year, compared with a 1% rise predicted by European CFOs. That may be due to costs related to the new health-care regulations that US businesses are preparing to bear.

Significant gaps in expectations have existed since the second quarter of 2011, when the confidence of US CFOs in their own companies surged far ahead of that of their European counterparts. During the fourth quarter of 2010, European CFOs’ 12-month forecast for revenue increases (13.1%) was greater than that predicted by US CFOs, who forecasted a 10.5% revenue increase at the time. But US CFOs’ revenue predictions outpaced those of European CFOs in the first quarter of 2011, with a wider gap in subsequent surveys.

Overall, the latest survey showed a drop in confidence in both regions. The index for European CFOs’ optimism for their own companies fell to 54.5 from 58.3 the previous quarter. US CFOs’ optimism for their own companies dropped to 67.8 from 70.6 over the same period.

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.