CFO Sentiment: Global Uncertainty Dents Confidence

Australia’s chief financial officers (CFOs) are increasingly confident that the economy has passed its low point and is on the way up. But that confidence doesn’t apply to their own business performance amid expectations of margin compression and lower profits over the next 12 months.

The latest edition of Deloitte’s biannual CFO Sentiment report, released today with responses from more than 60 large company CFOs, shows that the share of respondents feeling optimistic about the Australian economy has nearly doubled in just six months. This has driven net optimism in the economy to its highest level since the end of 2022.

At the same time, CFOs’ net optimism about business prospects has plunged 16 percentage points since the end of 2024 as net uncertainty surges to 92%, its highest level in over two years. More CFOs are expecting employment and profit margins to decrease over the next year and have rising concerns about competition, pricing and costs.

Deloitte partner and CFO Program leader Stephen Gustafson said: “This is the first time business and economic confidence have diverged since we began measuring both sentiments almost three years ago. It shows how constant changes to global tariff and trade policy is contributing to a sense of uncertainty and keeping risk appetites subdued.

“However, tariffs are not the whole story. While 84% of CFOs believe they will negatively impact the Australian economy, only 64% believe they will impact their own business, with most adopting a wait-and-see approach towards a formal tariff response.

“Internal challenges are also dragging down business optimism. Alongside margin and profit fears, an inability to execute strategies remains the top issue, with 62% identifying this as a significant risk. Meanwhile, technology implementation and digital disruption (48%) is a growing concern for CFOs.”

Deloitte Access Economics Partner David Rumbens said: “CFOs are unarguably more optimistic about the Australian economy than they have been in years. But just because the economy is doing better than it was, does not mean that it’s yet in fantastic health. There are a number of economic factors contributing to the business pressures being felt by CFOs.

“While the worst of the cost-of-living crisis and associated economic slowdown appears to be over, economic growth remains sluggish and is still going backwards on a per-capita basis. This has implications for household spending, which remains subdued and is contributing to expectations of lower margins and profits for businesses.

“However, there are green shoots – we are firmly within a rate-cutting cycle, inflation appears to be under control, the labour market is relatively resilient, and the results of the recent federal election provide for policy certainty, which should help CFOs forward plan investment and could help lift business sentiment in the coming months.”

Productivity is Key

With internal challenges supplanting external economic concerns as the top perceived risks of CFOs, there is a growing awareness among business leaders that investment in transformation and technology is needed to boost weak productivity. In turn, nearly one in two CFOs (48%) expect capital expenditure to increase over the next 12 months, up from 35% six months ago.

Similarly, cost control and operational efficiency is a key focus, with 80% of CFOs naming this as a high priority while 65% of businesses are making long-term strategic and transformational investments to improve efficiency, most commonly by modernising or simplifying operations and focusing on people, productivity and performance.

Gustafson said: “Low productivity growth has been a persistent issue that has been dragging down business and economic performance for years, so it is no surprise that CFOs are looking to reassess and streamline workforce strategies while simplifying operations.”

AI: Adoption to Effectiveness

With operational efficiency such a common priority, it is no surprise that use of AI has surged in the last six months: 83% of CFOs say their organisation is using the technology – up from 67% last survey – while 64% say it is being used in the finance function, up from just 30% previously.

But while AI use is now widespread, many businesses are still struggling to implement the technology at scale, with CFOs highlighting challenges around investment costs, privacy concerns and demonstrating value. Most AI strategies at respondent CFO businesses are only somewhat developed or in their early stages (75%).

Gustafson said: “Although AI adoption is growing, its use remains fragmented and weighted towards a ‘bottom-up’ approach rather than advanced ‘top-down’ AI strategies that promote strategic alignment across the business and have the potential to unlock value and drive efficiency.

“This could suggest that organisations have started using AI before developing a formal adoption strategy, or that the technology is evolving too quickly for strategies to remain relevant. Technological innovation and digital disruption rate as a top five concern for CFOs, so the impetus for action is there – but competing priorities and talent constraints are proving to be consistent obstacles to broader implementations.

“With organisations increasingly moving from AI pilots to widespread use, overcoming these barriers will be key to unlocking the productivity benefits of the technology for businesses.”

And looking ahead…

Rumbens said: “Rising optimism throughout 2024 suggested that CFOs were preparing for a stronger year ahead in 2025. However, that upbeat sentiment has since been dialled back. While confidence in the broader economy continues to grow, CFOs are now less assured about the outlook for their own businesses than at any point last year.

“Few could have foreseen the geopolitical developments that have pushed economic uncertainty to record levels, and it seems this volatility is set to remain part of the business landscape for the foreseeable future. Many organisations will be hoping that ongoing interest rate cuts offer some reprieve in what remains a challenging environment.

“Top of mind for many are questions around global tariffs. How significant will they be? When might they be introduced? What impact will they have on Australian businesses? At this stage, many CFOs seem to be adopting a cautious approach, delaying major strategic moves until more certainty emerges.”