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Optimism’s New Address: Europe

European CFOs are more positive about economic conditions for a change—unlike their counterparts elsewhere.

The results of the latest Duke University/CFO Magazine Global Business Outlook Survey marked a geographical shift in economic optimism. While the rest of the world’s upbeat outlook tipped downward from the second quarter, European finance executives’ optimism grew. As a result, European economic optimism overtook that in Asia, and began to close in on the relatively strong view expressed by CFOs in the United States.

On a 100-point scale, finance executives in Europe gave their individual countries’ economies an average rating of 55.7, a solid jump of 4.5 points from the previous quarter’s ratings. The outlook for the U.S. economy subsided a bit, slipping 2.6 points before coming in at a still-encouraging level of 58.2.

But in Asia and Latin America — until now hotbeds of economic optimism — finance executives took a decidedly gloomier view of their regions’ prospects. In Asia, economic optimism sank to a record low of 54.3, while in Latin America, the economic optimism index dropped to 61 out of 100, its lowest level since September 2012.

13Nov_DD_P52bThe upswing in Europe represents a strengthening of a trend that started earlier this year, as governmental belt-tightening began to take effect. In our March 2013 survey, the number of European finance executives who said they were more optimistic than before about their countries’ economies caught up to those saying they were less optimistic (30.5% each). Then, in the second quarter, a third of the European respondents said they felt more optimistic about the economy, edging ahead of the pessimists for the first time in a year. The gap between the optimists and the pessimists widened considerably in the third quarter: fully half of the Europeans said they had become more optimistic about their national economies, and a historically small number, 16%, were less optimistic. (The remaining 35% cited no change in their outlooks.)

Some Clouds
These kinds of results bolster governmental and independent projections for recovery in Europe. Economic indicators provided by both the European Commission and the International Monetary Fund, for example, project positive GDP growth for most countries in the region in 2014.

Of course, everything’s relative. GDP growth is still expected to remain anemic next year, at less than 1% for many of the European Union members. But for countries like Spain, Portugal, Italy and Greece, any uptick is a welcome change, coming on the heels of bruising austerity programs. Spain, in fact, managed to pass a 2014 budget without any new tax hikes or additional cuts to core social programs.

Our third-quarter survey provided other signals that European enthusiasm is not unrestrained. Consumer demand remained top of mind for finance executives in Europe, with 53% ranking it among their top three macroeconomic concerns. The aftereffects of recession and austerity programs have imprinted an understandable hesitancy on the part of consumers.


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