Caution Colors CFOs’ 2023 Outlook as Macro Risks Grow: 4Q22 CFO Signals

CFOs weathered a challenging 2022 – a year defined by talent/labor shortages, rising geopolitical tensions, and steep interest rate hikes from the Federal Reserve. As 2022 wound down, North American CFOs expressed a dimmer economic outlook for 2023, but left the door open for investment in technologies and new business.

According to Deloitte’s 4Q22 CFO Signals survey, CFOs’ optimism, growth expectations, and inclination to take greater risk all declined. When asked about their 2023 priorities, it may not be a surprise that two top priorities for CFOs are cost management and financial performance, each cited by more than half of the CFOs surveyed. Still, they’re keeping their eye on growth—both internal and external—as their third top priority.

Ultimately, the survey shows that the challenges of 2022 have girded CFOs and their organizations to withstand adverse conditions and keep an eye on opportunity. Here are the most salient takeaways from our final survey of 2022:

CFO pessimism rose to the highest levels recorded since 2Q20

Pessimism was the overriding sentiment in CFOs’ assessment of global economic conditions and their companies’ financial prospects. CFOs lowered their assessments of future economic conditions in Europe, China, Asia excluding China, and South America. When considering economic conditions in North America a year from now, CFOs’ views were unchanged from 3Q22, at 29%.?

CFOs’ net optimism also dropped to -21 from last quarter’s -19, a continuation of six straight quarters of declining net optimism that began in 2Q21. The proportion of CFOs feeling more pessimistic about their companies’ financial prospects rose to 41% in 4Q22, from 37% in the prior quarter, the highest percentage recorded since the height of the COVID-19 pandemic in 2Q20.

Across all operating metrics, CFOs expressed lower growth expectations. Expectations for revenue and earnings growth fell to 4.2% and 2.9%, down from 6.2% and 6.4%, respectively. Growth expectations for domestic hiring fell from 2.6% in 3Q22 to 2.1%. Expectations for domestic wages fell to 4.6%, a dip from 4.8% in the previous quarter.

Not surprisingly, CFOs expressed an increased aversion to risk-taking in 4Q22 after showing a slightly greater propensity for risk-taking last quarter. Only 29% of CFOs believe now is a good time to take greater risks, lagging significantly behind 3Q’s 38%. This metric also falls substantially below the two-year average of 50% and is only slightly higher than the all-time low of 27%, which was recorded in 2Q20.

Talent continues to weigh heavily on the minds of CFOs

Talent retention rose to the top of CFOs’ most pressing internal concerns, followed by talent attraction and hiring, along with prioritization and execution. This speaks broadly to the pressure the current labor environment has put on organizations. Looking ahead, almost three-quarters of CFOs (74%) agreed that talent and labor costs will substantially increase in 2023.

On a positive note, in 4Q, 41% of the surveyed CFOs indicated that they plan to hire more people than they let go in 2023. They are also looking to continue leveraging technology in the workforce and in operations: 84% of CFOs said they plan to use automation and digital technologies to help free up staff for higher-value activities, and 79% noted their organizations will embed more automation and digital technologies into operations. Talent, automation, and use of digital technologies are some of the expectations CFOs’ focus on as they contend with the changing economic environment.

Despite gloomy outlook for 2023, CFOs are not forsaking investment

With one-in-three CFOs pointing to economic challenges and a possible recession as major constraints on their company’s ability to meet financial performance goals in 2023, they are certainly preparing for rainy days. More than one-quarter (29%) of CFOs reported their organizations expect to repurchase/pay down a sizable portion of their bonds/debt, and 36% will seek to reduce their cost of capital, while 26% plan to hold more cash.

Yet, many CFOs see sunshine ahead. Two-thirds of surveyed CFOs indicated their organizations will allocate or reallocate capital to new business investments this year. In addition, almost half of CFOs indicate their companies will increase investments in ESG initiatives. ?

As 2023 unfolds, CFOs have an important role in making hard decisions and trade-offs that are often required in an uncertain macroeconomic environment. Fortunately, they have more tools at their disposal than ever before. Using modern technologies and data analytics, they can get a real-time assessment of performance and risks. No doubt, CFOs can draw on these tools and experiences as they work to bolster their organizations’ resilience and adaptability for whatever the year may bring.

?

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.

Copyright ? 2023 Deloitte Development LLC. All rights reserved.