Global finance leaders guarded on economic outlook

The worldwide business outlook on economic expansion has softened – but bright spots remain with US finance executives still relatively bullish, report American Express and CFO Research.

The international financial services corporation’s ninth annual survey of global finance leaders shows those in the US are less optimistic than a year ago, but 73% expect economic expansion over the next year (against 83% in 2015) – still above the global average of 65%.

Three in four US finance executives report that company revenues are higher now than a year ago, outperforming any other country by at least 10 percentage points. The US also shows the largest increase in executives with aggressive spending and investment plans in order to boost top-line revenue (31%, against 13% in 2015).

Europe: moderate expectations

Europe’s executives have more moderate expectations for economic expansion, with 62% of respondents expressing optimism. The UK is most positive, with 75% expecting economic expansion, while France’s level of optimism rallied from last year’s historic low of 29% to reach 47%. Offsetting these gains are declines in economic optimism seen in Germany and Russia since 2015, falling to 58% (from 67%) and 44% (from 55%), respectively.

French executives ascribe their increase in optimism to favourable trade agreements and improving economies elsewhere, as well as to continued financial restructuring and the positive effects of mergers and acquisitions (M&A). Germany’s decline is attributed to concerns over a slowdown in exports to emerging markets, while Russia faces recession and rising inflation.

European respondents in Europe expect a 6% increase in hiring this year. UK finance executives are most likely to plan to hire (9%), followed by Germany (6%) and Russia and France (both 3%). British (62%) and German (43%) companies say their performance goals have been affected by difficulty in hiring skilled or specialised workers.

French finance executives cite shortfalls in hiring IT staff (35%) and Russian executives cite difficulty filling manual or unskilled labour positions (32%). To combat their hiring challenges, companies in France (42%), the UK (41%), Germany and Russia (both 38%) will make greater use of temporary or contract workers.

India upbeat, China downbeat

In Asia/Australia 59% of respondents anticipate economic expansion over the next year, with sharp differences country to country. India continues to have the highest optimism in the region (86%), reflecting aggressive spending and investment plans and a commitment to innovation and growth. Australia edges up to 64% from 60% last year, in part reflecting an increasing shift toward focusing on consumer demand to offset its historical reliance on mining and commodity exports, particularly to China.

However, the region’s outlook was severely undercut by a 20-point drop in optimism in China (to 58%), where companies face production issues, unfavourable exchange rates, and currency devaluation. Singapore (60%, down from 70%) and Hong Kong (30%, down from 50%) also saw double-digit declines from 2015 levels.

On average, Asia/Australia respondents expect to see an 8% increase in hiring. India expects to increase hiring the most (13%), followed by Australia (10%), Singapore and Japan (both 8%), China (6%) and Hong Kong (5%).

Hong Kong executives (66%) say their performance goals have been affected by difficulty in hiring skilled or specialised workers. In India (70%), China (68%) and Japan (53%) finance executives cite difficulty in filling sales and marketing positions. In Singapore companies say they have difficulty hiring management and skilled or specialised workers (each 58%).

Finance executives in Australia cite difficulty hiring management (55%) and in finding IT staff (53%). In order to address their hiring challenges, companies in Singapore (59%), Japan (55%), Hong Kong (53%) and Australia (47%) will make greater use of temporary or contract workers. Companies in India (63%) and China (56%) will move some positions from overseas to domestic locations.

Mexico leads Latin America optimism

In Latin America, 73% of respondents anticipate expansion in 2016. The strong showing for the region is led by large increases over the 2015 survey in optimism in Mexico (79%) and Argentina (73%). In the case of Brazil, an eight-percentage-point decline in economic optimism from last year still places that country near the global average, coming in at 67%.

Mexico is near the top of the global list of countries anticipating an increase in hiring (by 13%) followed by Argentina (by 10%) and Brazil (by 7%). In Argentina (58%) and Mexico (55%) companies say their performance goals have been affected by difficulty in hiring skilled or specialised workers.

Brazilian finance executives cite shortfalls in hiring for sales and marketing positions (54%) and for manual or unskilled labour (53%). To combat their hiring challenges, Argentine companies will move some positions from overseas to domestic locations (58%) and companies in Mexico (51%) and Brazil (49%) will make greater use of temporary or contract workers.

Caution versus growth plans

The survey suggests that although senior finance executives worldwide are more guarded in their outlook, 87% of those surveyed say their companies plan to increase total spending and investment in 2016 and 49% plan increases of 10% or more. However, 61% of survey respondents say that political and economic uncertainty will make them more cautious.

As they seek to grow their enterprises, finance leaders are seeking stability and security where they can find it and will focus on optimising cash (68%) and strengthening sales in domestic markets (41%).

They will spend on areas tied to growth by spending and investing more in areas such as:
• New product/service development (32%).
• Improving production efficiency (31%).
• Technology including: mobile technology (31%); enterprise-level IT (29%) and hardware/infrastructure (28%).

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