Dive Brief:
- Half of CFOs and other “treasury professionals” in the U.S. and Canada believe shifts in inflation, interest rates and economic growth pose the biggest risks to company earnings in the next three years, the Association for Financial Professionals found in a survey.
- “Looking ahead to 2026, respondents’ lack of confidence in predicting their organizations earnings presents a gloomy outlook,” according the AFP Risk Survey Report. “With the immense uncertainty that has dominated the economic environment, the doubt that appears to exist in the current economic environment can only be expected.”
- Seven out of 10 respondents in the U.S. and Canada have tried to adapt to the rapid rise of borrowing costs since early last year by stepping up efforts to ensure liquidity, the AFP said. During the coming year, 63% of those surveyed said they plan to cut costs.
Dive Insight:
CFOs for more than a year have faced widespread forecasts of recession and rising borrowing costs as the Federal Reserve pushed up the main interest rate from near zero to a range between 5.25% and 5.5%, the highest level in 22 years.
“Fears of recession and other economic uncertainties and interest rate fluctuations caused more treasury professionals to keep their money close,” the AFP said. “With increasing financial pressures, firms are being forced to trim costs.”
Many CFOs face the prospect of strained balance sheets as they refinance debt in coming months at much higher interest rates than were common just two years ago.
The outlook for borrowing has worsened in recent weeks. Since Fed policymakers met on Sept. 19-20, the yield on the 10-year Treasury note has risen about 0.5 percentage points to 4.8%.
The yield — the benchmark for corporate bonds, auto loans, mortgages, student loans and other financing — breached 5% on Monday for the first time in 16 years before falling back. It began 2023 at about 3.8%.
“We’re going to see higher rates for longer,” BlackRock CEO Larry Fink predicted Tuesday at a conference in Riyadh, Saudi Arabia, citing harmful U.S. fiscal policy and other inflationary forces such as the Fed’s large balance sheet, threats to immigration and fragmentation of supply chains.
JPMorgan Chase CEO Jamie Dimon voiced caution about the economic outlook and, like Fink, criticized fiscal and monetary policy, saying that “central banks 18 months ago were 100% dead wrong” in their forecasts.
“Fiscal spending is more than it’s ever been in peacetime and there’s this omnipotent feeling that central banks and governments can manage through all this stuff,” Dimon said during a roundtable discussion with Fink sponsored by the Future Investment Initiative Institute.
Fifty-four percent of CFOs and other “treasury professionals” believe inflation will challenge earnings during the next three years, AFP said.
“Future earnings are likely to be affected by rising costs and rising wages, resulting in higher costs of goods sold and selling costs and administrative costs,” according to AFP.
In the U.S. and Canada, 58% of survey respondents identified cyberattacks such as phishing and ransomware as the most challenging risks, an increase from 47% in 2021 and 12% in 2010, AFP said.
More than four out of five respondents in the U.S. and Canada (82%) said expanded use of technology has increased company vulnerability to cyberattack, AFP said.
“As much as companies try to prepare for such attacks, breaches arise when least expected,” according to AFP. It conducted a worldwide survey in May of 408 CFOs, treasurers, controllers and other financial professionals.
