Senior finance executives in the United States are concerned that President Trump’s off-the-cuff Twitter posts and public comments may affect business, specifically by causing market fluctuations and uncertainty. Finance chiefs also consider some of the president’s signature policy and tax initiatives to be bad for business.
At the same time, though, U.S. finance chiefs report they’re feeling more confident about economic growth than they have in more than a dozen years. Meanwhile, in other parts of the world, economic confidence had its ups and downs. Finance executives in Japan, Latin America, and Africa report feeling more confident in the macroeconomy, but those in Europe and Asia (except Japan) are less confident.
These findings are from the Duke University/CFO Magazine Global Business Outlook survey, which has been conducted for 84 consecutive quarters and gathers input from senior finance executives around the globe. The survey ended March 10.
Thumbs Up and Down
U.S. participants weighed in on a variety of topics, and there were many points of disagreement with President Trump:
- 85% oppose reducing H1-B visas for highly skilled workers.
- 70% say the president should stick to prepared remarks during speeches.
- 68% favor retaining the current leadership at the Federal Reserve Bank.
- 67% say the president should stop using Twitter.
- 64% are against building a wall along the Mexican border.
- 58% say eliminating the debt interest deduction would be bad or very bad for the U.S. economy.
- 57% say that a substantial tariff on Chinese and Mexican goods would be bad or very bad for the U.S. economy.
- 55% say a border tax would be bad for business.
Points of agreement with the president included:
- 86% say that reducing the U.S. corporate income tax rate to as low as 20% would be good or very good for the economy.
- 75% say easing the repatriation of foreign profits will give the U.S. economy a boost.
- 75% say allowing companies to immediately deduct new investment will be beneficial.
- 74% say reducing the top personal income tax rate to 30% will be good or very good for business.
- 58% support the president’s plan to restrict immigration from specific countries.
Glass Half Full
The survey’s U.S. optimism index jumped this quarter to 68.5 (on a 100-point scale), the highest level in 14 years and well above the long-run average of 60. That level of business optimism likely presages strong hiring and spending plans for U.S. companies in 2017.
The survey finds that 61% of U.S. firms plan to increase their payrolls in 2017, with an average increase of about 3% (and a median of 1%). Wage hikes are expected to average nearly 4%. CFOs project capital spending will climb 6% on average (and a median of 3%), a notable improvement from flat or negative spending plans for most of 2016.
Canadian optimism jumped to 67 this quarter, up from 63 last quarter. CFOs in Canada forecast that capital spending and hiring will each grow by about 3% in 2017. Still, 55% of Canadian finance chiefs think business regulations must be reduced to improve the business environment, and 48% say the same about improving infrastructure.
In Latin America, economic optimism rebounded from near-historic lows last quarter. Mexico returned to 61 this quarter and optimism increased in all surveyed countries except Peru (63). Other optimism ratings include Chile (47), Colombia (57), Brazil (58), and Argentina (70).
Averaged across Latin America, capital spending plans are projected to rise 2%. Full-time employment is expected to grow a modest 1%. The recent Odebrecht pay-to-play scandal made headlines and implicated government officials in Peru and Brazil; however, only about 15% of companies in those two countries say this caused them to reduce planned investment spending for 2017.
Business optimism in Asia averaged 57.6 this quarter, down 1 point. Across the region, optimism ranged from 45 in Singapore and 46 in Malaysia to 56 in Japan, 61 in China, and 64 in India. Concerns dampening Asian optimism include economic uncertainty and currency risk.
In addition, 70% of finance chiefs at companies in Asia say that lack of public trust in business and government is moderately or greatly harming the business environment. The problem is acute in certain countries: about 70% of senior finance executives in India and the Philippines say corruption is a significant problem holding back the economy, and 40% of finance chiefs in China say the judiciary must be fixed.
Many finance executives in Asia would also like to see business-friendly tax and regulation changes akin to what politicians are promising in the United States. Nearly 40% of senior finance executives in Asia identify the corporate tax system as needing reform, and 34% say the same for other kinds of government regulations.
Still, growth projections are healthy. Finance executives forecast capital spending increases of a median 7.5% across Asia, though by less than 2% in China. Employment and wages are expected to grow by about 5% in 2017, with wages increasing 2.5% in Japan versus 7.7% in China. One possible reason for the growth in hiring and pay: companies are running lean. Half of Asian CFOs, including two-thirds in Japan, say they lack the human capital necessary to respond rapidly to a sudden increase in demand.
In Europe, region-wide business optimism fell by one point, to 55.7, in the first quarter. Optimism is particularly strong in the Netherlands (69) and Germany (65), and weakest in Italy (50). Optimism in France (55) and the United Kingdom (54) is moderate.
The top concerns in Europe include economic uncertainty, regulatory requirements, government policies, and attracting qualified employees. Survey takers say reducing business regulations is the top item that must be addressed to improve the business climate, followed closely by reducing political instability.
Across Europe, finance executives forecast wages will increase by 2% over the next year, and employment will remain essentially unchanged. Capital spending is expected to rise by a median 3.3%.
In Africa, economic optimism rose to 48.3, up from 46 last quarter. African finance executives are worried about economic uncertainty, government policies, currency risk, and, in Nigeria, inflation.
Two-thirds of senior finance executives in Africa say corruption is a significant problem that must be addressed to improve the business climate, and more than half say the same about infrastructure.
Capital spending in Africa is forecast to rise by a median 5%, and wages by 7%, over the next 12 months. However, with finance chiefs expecting a 4.5% increase in the prices of their firms’ products, the largest of any region in the survey, a lot of that increase in capital spending and wages may be due to inflation. Indeed, finance executives project full-time employment will actually decrease in 2017.