Good resilience, but economic slowdown also likely in 2013
The Swedish economy is resisting the euro zone crisis relatively well but a weak international development is putting production and exports under pressure. Due to the very strong preliminary GDP figure for the second quarter, SEB:s growth forecast has been revised upward to 1.3 per cent for 2012. Since other and more recent indicators do not fully support such a strong development, the forecast takes into account a partial reversal during the second half of 2012. The overall Deloitte/SEB index supports the view of a weakening economy with a drop to 48.3 in September compared to 50.5 in February. The ever-widening economic downturn in Europe and the deceleration in emerging market countries contribute to only a slight improvement to 1.5 per cent GDP-growth in 2013. During 2014 growth will be somewhat faster and we expect GDP to grow by 2.5 per cent.

Hot topic - Outlook on the Euro situation
Judging from the limited number of companies that have adjusted their operations, responding CFOs do currently not seem overly concerned about the impact of a potential situation where the Euro does not exist in its present form. Whether this is a sign that CFOs believe that the Euro will not exist in its present form, the companies will not be significantly affected by any changes, or simply that risk assessments have not yet been performed and this issue not adequately considered by the CFOs, remains a speculation.

Business conditions and outlook
The positive trend from February 2012 has in September turned slightly negative. In line with the second quarter results, companies seem to expect more difficult times ahead. However, companies have yet not seen the effects of the weakening sentiment.

Prospects and concerns
As in previous surveys, demand is still the greatest concern for Swedish CFOs. Other factors as access to capital, competition and cost of materials remain in line with previous survey results. A growing concern for exchange rates is however seen over the last survey. Companies seem to have underestimated the pace at which the Krona has strengthened against key currencies. Furthermore, concerns of interest rates have risen in the September survey.

Financing
The lending attitude of financial institutions is in general seen as favorable to average, which is unchanged from the latest survey. A larger share of CFOs now forecast the probability for counterparties’ default as unchanged, despite current market challenges and generally weakening sentiment.

Strategic Opportunities
According to the survey, companies prefer parking their money to taking strategic actions. CFOs give a mixed picture on valuations and the quantity of deals involving a Swedish target remains below the five year average. Acquisition opportunities might emerge as valuations reach more attractive levels and overall the survey still suggests that the M&A environment will improve over the next twelve months.

An international outlook - Uncertainty takes its toll on optimism
Below we have compiled key points from the most recent Deloitte CFO Surveys in UK/Europe, North America, and Asia Pacific (performed in Q2 2012) as well as some highlights from Deloitte’s Q3 2012 outlook on China.

UK/Europe
- On average, in Q2 UK CFOs saw roughly a one-in-two chance of the recession continuing to the end of 2012 or for the economy to hit a ‘triple-dip’ recession.
- CFOs’ expectations for the Swiss economic outlook improved in Q2 compared to previous quarters; there was a positive net 5% balance of sentiment when looking at the next twelve months.
- Dutch CFO optimism about the financial prospects of their own company improved since last quarter, but hovered around the zero mark in Q2, meaning CFOs were almost equally positive and negative about their companies’ financial prospects.
- Compared with a year ago, UK CFOs are more focussed on reducing leverage and disposing of assets – and less likely to be making acquisitions or undertaking capital expenditure.
- The risk appetite of Dutch CFOs dropped in Q2 to the low levels last seen in the third quarter of 2011 and early 2009. Only 8% of Dutch CFOs thought it was a good time to be taking greater balance sheet related risks.
- Although the availability of credit in the UK has deteriorated, the overall credit conditions for large corporates did not seem to be especially stringent in Q2.
- In Q2, Swiss CFOs believed there was an average probability of 55% that at least one of the current members will have to leave the Eurozone within the next five years. In the UK, CFOs saw a 36% probability of one or more countries leaving the single currency, relative to 26% in February of 2012.

North America
- In the Q2 survey, nearly half of all North American CFOs mentioned a slowing economy a top concern, generally this sentiment has worsened since Q1 2012. CFO optimism in North America was still positive in Q2 but sequentially decreased on a net basis to +11 points from +48 points in the preceding quarter. This means that optimistic CFOs outnumbered pessimistic CFOs by 11% of the sample.
- Despite the global economic concerns and declining optimism, North America CFOs continued to enjoy rising expectations for their companies’ sales performance over next 12 months in Q2. Indeed, sales growth expectations for the next twelve months increased to +6.6% YoY, from +5.9%, but earnings expectations narrowed slightly to +10.5% YoY, from +12.8%.
- CFOs’ capital investment growth expectations over the next 12 notched down to +11.4% YoY, from +12% YoY, but are still significantly higher than growth expectations for R&D, marketing, and dividends.
- About 70% of CFOs reported substantial cost-saving changes to their supply chains in Q2 – mostly through reconfigured and renegotiated sourcing arrangements.
- Despite challenging sales volumes, a remarkable 65% of all CFOs reported having raised prices in Q2 of 2012 (82% in Manufacturing, 90% in Retail/Wholesale), and 42% say further price increases are coming.

Asia/Pacific
- China has seen its fifth consecutive quarter of declining GDP growth and People’s bank of China cut interest rates in June and July of 2012. However factories in China’s large coastal cities still have trouble fulfilling their labour needs, due to a change in migration trends. Efforts to boost growth have been targeted on tax incentives for consumer spending on automobiles and appliances, as well as loans to small businesses. Stimulus for bigger projects, such as those initiated in the 2008 stimulus efforts, has been largely avoided.
- The Indian government is walking a tight rope as it attempts to contain inflation while retaining growth and the credit rating agencies have started to view the future more negatively. It is not surprising that in the Q2 survey 46% of Indian CFOs expected the GDP growth rate to taper further. Indeed, 31% of CFOs were optimistic about the performance of their organisations in Q2, relative to 47% in the prior survey.
- In Australia business uncertainty hit its highest level in more than a year with 87% of CFOs saying uncertainty was above normal. The most significant factors facing companies’ financial prospects are the European sovereign debt issues, Australian government policy uncertainty, and the potential slowdown in China. Still, the tough times have driven companies there to innovate: two-thirds of Australian CFOs say it is a priority to introduce new products and services or expand into new markets.

Download the survey below (PDF 12 pages in English)