Published: September 01, 2010
There has been a significant decline in the number of corporate treasurers all over the world who think that the financial crisis is over, and a sharp increase in levels of uncertainty about what lies ahead. Globally, they are no longer bullish, on balance, with optimists almost exactly offset by pessimists, taking the next 12 months as a whole. And treasurers’ biggest concern now is the difficulty in forecasting their cash flows – even overtaking the state of the economy itself as their number one challenge.
These are the key findings from the latest EuroFinance Quarterly Global Business Confidence Survey, exclusively supported by J.P. Morgan Treasury Services. This new mood of caution stands in stark contrast to the continuing improvement in the financial background which has seen better credit conditions for companies and a reduction in the number of businesses complaining about the impact of funding constraints.
EuroFinance Editorial Director Andrew Sawersn said, "It's starting to look as though we might be reaching a peak, but even the professionals who have a front-row seat on corporate cash flows are struggling to understand which way the economy is going to turn. This is very worrying: uncertainty breeds indecision – and that is ultimately damaging for the economy … There is such a significant increase in the level of uncertainty that, for at least one or two of our survey questions, ‘Don’t know’ was the second-favourite answer.”
Double-dip recession, the Greek euro crisis and fears of contagion, and the problem of huge amounts of government/sovereign debt are the top-rated threats to business, treasurers say.
Treasurers are increasing the emphasis they put on preserving their balance sheet capital and their cash liquidity, while de-emphasising their search for returns on their cash investments. “They are ‘playing it safe’, again,” Sawers explained. “The knock-on effects in terms of investment and expansion could be significant.”
“Given the fragility of the market recovery, whilst any single event might be rationalised on its own, the recent ongoing wave of crises in the Eurozone is certainly impacting corporates’ willingness to move forward decisively,” notes Steven Victorin, Client Executive for J.P. Morgan Treasury Services. “Throughout the crisis, corporates have been balancing the need to conservatively manage risk and leverage efficiencies during a time when it is challenging to gain any meaningful visibility. Whilst we are engaged in forward-looking dialogue with our clients, there remains a very strong bias towards prudence”. The number of treasurers who think the financial crisis is over has fallen from 32% to just 20%, as shown in Chart 1. The ‘Don’t knows’ are up from 16% to 25%. Netting “More bad news” respondents against those who say “It’s over”, there is now a sharp downturn to minus 35% (i.e., 20% who say “It’s over” subtract 55% who say “More bad news” = minus 35%).
Bullish treasurers now only very slightly outnumber the bears, looking at the next 12 months as a whole. The net figure (4% = 52% bullish minus 48% bearish) is sharply down from our last survey in April 2010. (See chart 2.)[[[PAGE]]]
In our survey of what concerns treasurers most, summarised in Chart 3, ‘Forecasting cash flow’ has risen from the number 4 concern to number 1, overtaking ‘State of the economy’ and ‘Counterparty risk’ – all of which still weigh heavily on the mind of the corporate treasurer.
The reasons for treasurers’ caution become apparent in chart 4: most regard a repeat onset of recession as a ‘Very significant threat’ to business. The euro crisis and the threat of contagion as well as the government/sovereign debt problem generally, are also creating great concern.
Charts 5 and 6 are concerned with credit conditions and the availability of funding. Netting out the proportion who say that credit conditions have improved (36%) against those who say they have deteriorated (14%) leaves a net positive balance of +22% – slightly down on the previous quarter’s survey but still a good result. However, funding constraints are less of a restriction on companies’ ability to capitalise on good opportunities.
EuroFinance has conducted its Quarterly Business Confidence Survey since the beginning of 2009, asking its global database of corporate treasurers for their views on the economy, bank finance and treasury priorities. Polling for the latest survey was conducted between late June and mid-July 2010 and more than 250 treasurers and other financial professionals took part, virtually all from corporate treasuries and from all regions of the world; 43% came from companies with more than $1bn in revenue.
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