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Eurozone break-up 'the biggest risk for CFOs'
Accountancy News |
04/01/2012
UK finance leaders see a potential break-up of the eurozone as being the single greatest risk to their organisations in 2012, it has been claimed.
According to research conducted by Deloitte, UK corporates are unconvinced by the response of European politicians and policymakers to the crisis.
As such, chief financial officers (CFOs) see on average a 37 per cent chance of a nation leaving the single currency during the next 12 months.
They believe a collapse of the euro would have a severe effect on UK businesses, causing a new credit crunch and driving major swings in asset prices and exchange rates.
Deloitte chief economist Ian Stewart said that against such a backdrop, it is no surprise that a return to recession in the UK is, after the euro, the second biggest concern for CFOs in 2012.
"CFOs are now working on the assumption that Britain will fall back into recession," he noted.
"They see a 54 per cent chance of the UK suffering a 'double dip', up from just 27 per cent a year ago."
The majority of respondents (64 per cent) expect a prolonged period of weakness lasting more than a year, Deloitte reported.
Financial stress is already affecting big UK corporates, the firm stated, with CFOs reporting the sharpest decline in credit availability since the third quarter of 2008.
Economic uncertainty is also seen as another "significant risk" for business in 2012, with the proportion of finance chiefs rating the level of external financial and macroeconomic uncertainty facing their business as being 'high' or 'very high' doubling in the last six months to 56 per cent.
Ian Stewart said the results illustrate the "corrosive effect of uncertainty" on corporate spending.
Some 87 per cent of CFOs believe this is a bad time to be taking additional risk onto their balance sheet.
"Just as it happened in late 2008, CFOs are reacting to a tough climate by strengthening their balance sheets," he stated.
"The financial strategies of UK corporates have reversed in the last year. CFOs entered 2011 with a focus on expanding into new markets and increasing capital spending."
"They enter 2012 with a focus on cutting costs and increasing cash flow," Mr Stewart stated.
He said that, by and large, big corporates in the UK have the firepower to spend.
"The challenge for policymakers in 2012 is to convince them that it makes business sense to do so," Mr Stewart added.
Posted by Stephen Wilkinson
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