Corporates down on confidence and unwilling to take risks

An overwhelming majority of Australian chief financial officers lack confidence in their company’s financial prospects, according to a survey by Deloitte.

The CFO survey found that only six per cent felt confident about the financial prospects of their company in the fourth quarter of 2014, compared to 23 per cent the year before.

Of the CFOs surveyed, 73 per cent felt now was not a good time to take greater risk onto their balance sheets, and 56 per cent said their company was risk averse.

Furthermore, 85 per cent expect uncertainty to prevail for at least another year.

Deloitte chief operating officer Keith Skinner said the rise in risk aversion across companies and the market is a worrying trend when it comes to investment and growth.

“Risk aversion is an understandable response to the current environment, but attitudes towards taking on greater balance sheet risk had been on an upward trend until the second quarter of 2014,” he said.

“They are now on the decline, and this begs a number of questions. Are we stuck, or getting stuck, in a risk-averse mindset? Are we getting in our own way and holding ourselves back? And what’s needed to cause a shift?”

The survey also showed that continuing signs of a weaker Chinese economy, together with the federal government’s ongoing fiscal repair battles, have impacted on CFO confidence.

CFO net optimism regarding China was -46 per cent in the fourth quarter of 2014, its lowest since the second quarter of 2013.

When it came to the Budget impasse, optimism levels were at -62 per cent – down from -39 per cent in the third quarter of 2013.

Mr Skinner said that in spite of the pessimism, there are “green shoots” that could drive improved sentiment – particularly in the Australian dollar and low interest rates.

“Even though Australian CFOs’ overall optimism remains subdued, a key optimism driver – a lower Australian dollar – is definitely now in play and improving our trade outlook,” he said.

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