Reversing a year of rising optimism, Canadian and U.S. chief financial officers are suddenly more downbeat on the prospects for the economy and their own companies, according to a quarterly survey by Deloitte being released Thursday.
Concerns about the global economy, including the euro debt crisis and falling stocks, are weighing on overall sentiment and prompting companies to "hunker down," Deloitte concluded, based on the survey conducted in the last two weeks of May.
The percentage of CFOs expressing optimism dropped to 39 per cent in the second quarter from 63 per cent in the first three months of the year.
"Companies are playing it a little more cautious and a little more conservative as they continue to watch and see what comes out of a world that remains volatile," Trevor Nakka, co-leader of Deloitte Canada's CFO program, said in an interview.
That's causing companies to ratchet back on capital expenditures, research and development, marketing as well and mergers-and-acquisitions.
Many CFOs also recognize they'll be hard-pressed to continue boosting profits through cost-cutting alone – the main source of profits since the recession.
"We're nearing a point where there are not as many gains that can be made," Mr. Nakka pointed out.
Canadian CFOs were significantly more optimistic about business conditions than their U.S. counterparts in the quarter – a pattern that has been consistent in the more than two years Deloitte has conducted the survey.
The persistent optimism gap is likely the result of Canada's faster pace of economic growth, lower unemployment and muted inflation, Mr. Nakka argued.
And yet Canadian CFOs are forecasting significantly lower sales and profit growth than U.S. CFOs. Canadians expect profits to grow 4.6 per cent this quarter, while Americans are forecasting gains of 12.3 per cent. It's a similar story on sales, with Canadians expecting a gain 5.9 per cent, compared to 6.7 per cent growth predicted by Americans.
"It does appear contradictory, Mr. Nakka acknowledged.
The more modest expectations north of the border may be due to Canada's heavy concentration of manufacturers and resource companies may explain, he suggested. These businesses are feeling the impact of the high Canadian dollar and a recent drop-off in commodity prices.
The top three challenges facing companies are growing or maintaining revenues, finding talent and prioritizing investments.
In spite of it all, CFOs in both countries expect to be able to raise prices, according to the survey, based on responses from nearly 100 CFOs of mainly large public companies; 19 from Canada.