Financial executives unimpressed with rate cuts

Deloitte’s biannual CFO Sentiment survey, conducted on senior finance executives between 9 December 2019 and 21 January 2020, found that roughly 50 per cent of Australian chief financial officers (CFOs) anticipated that the Reserve Bank of Australia would cut rates at some point throughout 2020.

The survey found that most of the rest of the cohort of senior finance executives (48 per cent) believed the rates would stay the same throughout 2020.

Additionally, Deloitte partner and CFO program leader Steve Gustafson stated that most CFOs seemed “less impressed” with the current impact of current record-low interest rates, “after previous rate cuts failed to deliver the hoped-for stimulus”.

According to the report: “The rate cuts last year hoped to stimulate consumer spending and reinvigorate stubbornly weak inflation but failed to do so.” 

“Consumer confidence is at a four-year low and rate cuts have thus far confused consumers, rather than reassured them.”

Deloitte Access Economics partner David Rumbens said: “Australia’s economy has entered 2020 in the slow lane, and with not a lot of ammunition left from the RBA to support it.” 

“But beyond that, the start of 2020 has delivered a range of additional challenges, where the business community will need to be at the forefront to help Australia navigate.”

CFO sentiment falls

Deloitte’s survey also found that optimism levels of Australian financial executives have fallen in the face of both domestic and global economic uncertainty, and CFOs are growing increasingly cautious about the future financial prospects of their businesses.

According to the research, 54 per cent of CFOs remain optimistic about the future, down from 68 per cent who said the same in mid-2019, while current net optimism came in at 46 per cent.

The drop was largely driven by a larger percentage of CFOs reporting a neutral outlook on their future business outcomes, with 40 per cent of survey respondents stating as such, while the percentage of CFOs who felt specifically pessimistic about their businesses future remained flat when compared to the previous six-month period, at 8 per cent.

“...The climb in neutrality may indicate that Australia’s CFOs are adopting a cautious approach as the complexity of recent global events unfolds and their full impact is yet to be completely realised,” Mr Gustafson said.

“Although it is pleasing to note that the numbers that are pessimistic remain low.”

Mr Gustafson stated that despite higher levels of economic uncertainty, it appears CFOs have grown more willing to take on risk, “bucking the usual inverse relationship” between risk appetite and uncertainty.

“This trend mirrors the net improvement in optimism that CFOs reported this period, despite rising levels of uncertainty, suggesting an increasing level of comfort by CFOs with today’s persistently uncertain times,” he said.

However, it is important to note that the survey was conducted prior to the crescendo of both the Australian bushfire crisis and the international coronavirus outbreak, which would both likely inflict downward pressure on sentiment levels, according to Deloitte.

[Related: Coronavirus could curb property price growth]