European CFOs nervous about political strife

European finance chiefs are increasingly worried about the growth of their businesses because of rising political strife in the continent.

According to the latest Deloitte European CFO survey, which got the views of nearly 1,500 finance bosses, the political environment has caused “uncertainty to rise, risk appetite to fall and cost control to remain a top priority” in the first quarter of the year.

Deloitte said a quarter of CFOs were more optimistic about the financial prospects for their company than they were three to six months ago, unchanged from the third quarter. Swedish CFOs were the most optimistic with 62% followed by Spain and Ireland.

Portugal, seeing internal political stalemate, saw the largest drop in sentiment across all countries down from 47% to 30%.

Overall 68% of European CFOs said there is a high level of financial and economic uncertainty facing their business, up from 66% in Q3.  Perceptions of uncertainty are highest in Germany, with 93% of CFOs reporting high levels, followed by the UK, where it has climbed from 73% to 83% heading towards the EU referendum and Russia.

Just 29% of CFOs said now is a good time to take risk onto their balance sheets, down from 33% in Q3. Risk appetite is slightly higher in the eurozone, where 32% are willing to take on risk. Appetite is highest in Italy, where 59% say now is a good time to take risk, and lowest in Turkey.

Mirroring rising uncertainty and recent political developments, the UK saw the largest fall in risk appetite, 25%, down from 47%.

The UK also saw the largest decline around hiring expectations, where 18% of CFOs plan to increase hiring, down from 47% in Q3.  It also has the weakest outlook for capital expenditure, with just 16% of CFOs willing to spend, down from 41% in Q3, the sharpest fall across all countries.

Overall 67% of CFOs said that bank borrowing is an attractive source of funding for their companies, up from 65% in Q3, 42% rate corporate debt as attractive, down from 48%, while just 22% said equity is a good source of funding, down from 25%.

David Sproul, senior partner and chief executive of Deloitte UK, said: “Europe’s CFOs are in a cautiously optimistic mood, but sensitive to a number of headwinds. Rising perceptions of external uncertainty have seen risk appetite fall and increasing pressure on operating margins and revenues. Amidst this uncertainty, firms are continuing to prioritise cost control, but this has not been at the expense of hiring plans.”