Quarter 2 2012 continued to provide tension, drama and twists in the tale of the EU crisis. The end of June saw EU leaders finally accept proposals to uncouple and differentiate debt of failed banks from sovereign debt in future bailouts, while the end of May saw the referendum on the EU fiscal compact being passed by a significant majority by the Irish people, underlining a national ambition to remain a significant part of the European project and our commitment to working through our current financial difficulties together. A further boon to the Government and EU was the successful return to the bond market, albeit for a small amount of short-term debt.
As usual, the Deloitte CFO Quarterly Survey continued to track sentiment among Ireland’s Chief Financial Officers amid these developments. Some of the key findings from the Q2 2012 Deloitte CFO survey include:
Optimism falls from high of last quarter
This quarter’s findings reveal a drop in business confidence with one in five Irish CFOs now optimistic about their company’s financial prospects, down from 32 per cent in the first quarter when CFO sentiment was at its highest point in a year. Despite the decline in overall optimism, sentiment on turnover and profitability remain steady. Fifty-one per cent of CFOs expect turnover to have increased in six months’ time, down slightly from 53 per cent last quarter. Forty-six per cent also expect profitability to increase in the next six months.
With regards to the Irish economy, 92 per cent of respondents do not believe that the economy will return to growth before Q1 2013. Consistently, CFOs have been more favourable about the performance of their own companies, compared to that of the overall economy. The findings also show that sentiment with regards to the eurozone is mixed – 37 per cent believe a break-up of the Eurozone is likely and 38 per cent believe it is not.
Cost and availability of funding in Ireland behind that of other European countries
This quarter’s survey compared CFO sentiment with regards to cost and availability of credit, with those of their peers in Europe. In Ireland, CFOs believe that credit is hardest to get and also the most costly when compared to other countries. The net balance of CFOs in Ireland who believe credit is costly is 81 per cent, contrasting with 57 per cent in the Netherlands and 50 per cent in Switzerland who believe credit is cheap. Similarly, Ireland ranks poorly in terms of availability of credit, with a net balance of 50 per cent of CFOs who believe that credit is hard to get, compared to 16 per cent in Switzerland and 9 per cent in Germany stating it is easily available.
A lot done, more to do – CFOs broadly positive on Government performance
CFO sentiment on the performance of the Government in the second quarter of the year remained broadly positive. Fifty-two per cent believe the Government has had a positive effect on fiscal and economic matters to date, an increase of five per cent on the Q1 results. Areas of performance that CFOs believe the Government are having a positive impact include restoring fiscal stability (65%), encouraging FDI (77%) and renegotiation of the EU/IMF Package (40%). However, those areas which CFOs believe the Government is having a limited impact on include reducing the cost of credit (75%), levels of taxation (69%), increasing credit availability to small business (66%) and employment (58%).
Overall, while it is somewhat disappointing that optimism has fallen amongst Irish CFOs from the high point achieved in the first quarter of the year, it is no doubt a reflection of the continuing uncertainty in the eurozone. Optimism is likely to ebb and flow among Irish CFOs as work continues within the EU to bring stability and as markets react to new developments.
However, as we have seen in previous quarters, CFOs are maintaining confidence in the ability of their own companies in terms of profitability and turnover, two key financial measures. In a marketplace that is continually changing and faced with challenges, this is very encouraging indeed.