According to the recent Deloitte CFO Signals™ 4Q 2023 survey, the following five key insights emerged for 2024:
Mixed Regional Economic Outlook: CFOs expressed a varied outlook for regional economies in the coming year. While business confidence in economic conditions in North America, Europe, China, and other Asian regions has declined, optimism has improved for South America. Notably, CFOs' views on their own companies' financial prospects have seen a significant decline from the previous quarter, contributing to an increased aversion to risk.
Challenges on the Horizon: CFOs identified several obstacles potentially affecting financial performance in 2024. Concerns about interest rates, inflation, and their implications for liquidity are prominent factors. Macro-economic conditions and geopolitical uncertainties are also cited as major hurdles. Additionally, CFOs anticipated potential constraints from a slowdown in consumer demand, labor markets, talent availability, and rising costs for talent/labor and oil/fuel.
Lower Growth Expectations: CFOs expressed diminished expectations for year-over-year growth in various aspects, including revenue, earnings, capital investment, dividends, and domestic hiring. In addition, cost pressures remain, as domestic wages and salaries are anticipated to see an increase.
Emphasis on Digital Transformation: A strong focus on digital transformation, automation, and technology emerged, with over three-quarters of CFOs expecting these elements to play a crucial role in achieving their companies' strategic goals. An overwhelming 80 percent anticipated increased integration of automation and digital technologies into operations in 2024, aiming to leverage these productivity improvements for higher-value activities.
Cybersecurity Tops Priorities: Cybersecurity took center stage as a top priority for audit committees in 2024, according to 76 percent of CFOs. This was followed by enterprise risk management, finance, and internal audit.
The survey also indicated that navigating the M&A landscape in the current economic climate poses challenges, which have been influenced by factors such as high interest rates and concerns about capital costs and availability. The recent decision by the Federal Reserve to maintain the current level of interest rates has introduced an element of uncertainty and affecting borrowing costs and M&A activity. CFOs recognize that inflation, interest rates, and liquidity have become key factors impacting financial performance goals, with constraints on M&A linked to debt market conditions.
While lower borrowing costs could encourage debt-funded deals, CFOs are also considering alternative financing structures, with almost half favoring cash and 30 percent exploring options like joint ventures and strategic partnerships. Challenges persist, with macroeconomics, geopolitics, and worries about consumer demand figuring prominently. Despite concerns, M&A remains a significant growth strategy for 37 percent of CFOs, emphasizing the need for innovative valuation models in deal-making.
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