Euro Break-Up Biggest Threat in 2012: CFOs Survey
Associate Editor, CNBC
UK chief financial officers (CFOs) see the break - up of the European single currency as the greatest threat to their businesses in 2012, a survey from the accountancy firm Deloitte showed on Tuesday.
The quarterly survey revealed CFOs believe there is a 37 percent chance that one or more members of the euro zone could leave before the end of the year, while 54 percent have priced in a double - dip recession occurring in the UK as a result of European instability this year.
On the whole UK corporates were unimpressed by the response of European politicians and policymakers to the euro zone debt crisis. On average, finance chiefs saw a high probability of at least one member state leaving the currency union and said they believed a collapse of the euro would have its most severe effects on UK business through financial channels – by causing a new credit crunch and by driving major swings in asset prices and exchange rates
One CFO surveyed by Deloittesaid the biggest risk he saw was a “Euro zone collapse sparking a second credit crunch”.
On balance CFOs said they expected corporate hiring, investment and discretionary spending to contract in 2012, with 87 percent telling Deloitte they saw now as a bad time to be taking additional risk onto their balance sheet.
The survey also found that 70 percent of financial chiefs expected corporate margins to decline in 2012.
The major priorities for large firms in 2012 were reducing costs and increasing cash flow, compared to the beginning of last year where companies were initially focused on expanding into new markets.
Financial stress was cited as still affecting the supply of credit to large companies, with participants telling the survey that credit availability in the last 12 months had deteriorated at the fastest rate since the credit crunch in September 2008.
The survey came on the same day that euro zone manufacturing activity was seen below the 50 mark that divides growth from contraction for the fifth consecutive month in December, painting a gloomy outlook for 2012.
Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) rose slightly in December to 46.9 from November's 46.4, unchanged from an earlier preliminary reading.
Markit said levels of production and new orders fell in all of the euro zone countries covered by the survey for the second month running.
"Despite the rate of decline easing slightly in December, production appears to have been collapsing across the single currency area at a quarterly rate of approximately 1.5 percent in the final quarter of 2011," said Chris Williamson, chief economist at Markit.
"The survey also points to a strong likelihood of further declines in the first quarter of the new year, with producers cutting back headcounts, inventories and purchasing,” he added.