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A personal take on economics from Ian Stewart, Deloitte's
Chief Economist in the UK.
The fourth quarter Deloitte Survey of UK Chief Financial
Officers is published this morning. This is the 26th CFO survey and
it shows how major UK corporates plan to navigate the risks and
opportunities of 2014.
CFOs enter 2014 in buoyant mood. Business optimism is at a
three-and-a-half-year high. Macro uncertainty and capital
constraints, two of the big blocks to business activity, have
receded.
Perceptions of macro uncertainty have fallen sharply in the
last year. CFOs now attach a 16% probability to the UK falling back
into recession in the next two years, down from 40% a year
ago.
The financing environment for big corporates is highly
favourable. CFOs are more positive about financing their businesses
with equities, bonds or bank borrowing than at any time in the last
six years. In a sign that the banking system is working, at least
for the big corporates in our survey, a record 80% of respondents
say that bank credit offers an attractive source of finance. CFOs
expect corporates to increase equity and debt issuance this year
and to borrow more from the banks.
The most striking finding – and we've put the chart
on the front of the report to make the point – is that a
record 57% of CFOs say that this is a good time to take risk onto
their balance sheet. A year ago this stood at 25%. Back in December
2008 the reading was just 1%.
The Bank of England and the Treasury will be pleased to see
that the top priority for CFOs in 2014 is expansion. Capex is an
increasing priority and 88% of CFOs expect M&A activity to
increase over the next 12 months.
How CFOs run their balance sheets, and in particular, their
appetite for expansion, holds the key to corporate investment,
hiring and M&A. A year ago the Head of Global Strategy at
Standard Life, Andrew Milligan, wrote that one of the signals for
turning more positive on risky financial assets would be a shift
from defensive to expansionary strategies in the Deloitte CFO
Survey.
Today's survey shows this has clearly happened (see chart
12 in the report). For the first time in three years, expansionary
corporate strategies are clearly in the ascendant.
We agree with Standard Life that the key issue is whether
greater optimism translates into corporate expansion: the signs
from the latest survey are that large corporates are, indeed,
planning to expand in 2014.
Policymakers will be relieved to see that corporates' plans
are falling into line with the official forecasts for the UK
economy. The independent Office of Budget Responsibility, for
instance, expects growth in business investment to accelerate from
1.9% in 2013 to 6.1% in 2014; exports of goods and services to rise
from 1.5% to 4.4% in 2014 and growth in average earnings to
accelerate from 1.4% to 2.7%.
Overall today's survey bodes well for the stronger, broad
based UK recovery policymakers hope to see in 2014.
MARKETS & NEWS
UK's FTSE 100 ended the week down -0.3%.
Here are some recent news stories that caught our eye as
reflecting key economic themes:
KEY THEMES
Latvia, which has the highest rate of growth in the EU, became
the 18th country to adopt the euro
Fiat acquired the remaining 42% stake in Chrysler to take total
control of the car maker
All 38 UK forecasters surveyed by the UK treasury think that UK
growth will be stronger in 2014 than in 2013
US house prices have risen by 13.6% in the last year, making
the US the world's most buoyant major housing market
PIMCO's Total Return Fund, the world's biggest bond
fund, lost almost 2.0% of its value in 2013, its worst fall in 20
years
Nationwide reported that UK house prices rose 8.5% in the year
to December
Fees for global investment banking services rose to a 6-year
high in 2013 due to a revival in IPOs
UK mortgage approvals hit a six-year high in November
Yields on 10-year Spanish government bonds fell to a
three-and-a-half-year low
Emerging market sovereigns and corporates issued $506bn worth
of bonds last year, the highest figure on record
The number of completed UK residential property transactions
rose to its highest level in four years in November
The Bank of Japan reported that Japan's economy is staging
a 'moderate recovery'
A Seattle woman named Beautiful Existence lost weight by
restricting her diet in 2013 to food purchased from Starbucks -
fast-food diet
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