With an uneasiness looming over the global economy as the year draws to a close, chief financial officers (CFOs) have told CNBC that softer growth in China and the threat of deflation in the euro zone are the two biggest issues their firms are facing.
Fifty-one CFOs from Europe and Asia - who make up the CNBC CFO Global Council - were asked what the major risks that their firms are currently up against. Coming ahead of the pack by a clear margin was the threat of falling growth in China. It came top of the list for Asian CFOs and was the third biggest risk for their European counterparts. When asked which of the year's geopolitical or economic risks had the greatest impact on their businesses, 57 percent pointed at the warning signs coming from, the world's second largest economy.
The results underline how important China is for global confidence as the country shifts from its traditional role as the world's factory floor to becoming a consumer-led economy. The Asian powerhouse, which has been the world's biggest consumer of raw materials, is now on course to post its slowest growth in nearly a quarter of a century. It grew 7.3 percent year-on-year during the July-September period, its slowest pace in more than five years, jeopardizing Beijing's 7.5 percent target for 2014.
The slowdown comes after years of double-digit growth and at a time when the country's new leadership is stepping up regulation and trying to curb an overheated credit market. As well as the tougher stance by Beijing, there has been a more gentle touch from the People's Bank of China. The central bank looks increasingly ready to backstop the economy and manage the fall in growth after announcing a surprise rate cut last month.
Diana Choyleva, the head of macroeconomic research at Lombard Street Research, believes that growth and monetary conditions in China are actually much weaker than the official numbers suggest. She regularly concentrates her research on the country and said in a note last week that Beijing is battling an ongoing correction in investment and capital flight from its shores.
"China's banks are one of the victims of Beijing's past excesses and will have to pay the price as the needed cleanup and financial market reforms unfold," she said.
Meanwhile in Europe, the major issue for CFOs is the threat of deflation in the euro zone. After fragile signs of a recovery last year, the euro zone bloc has suffered from subdued inflation in 2014 and gross domestic product (GDP) figures that have seen Italy fall back into recession and Germany post negative growth. Inflation figures are now so close to zero that many analysts have warned of the specter of deflation, when prices start to fall as consumers hold off on purchases in anticipation of more declines.
Euro zone deflation was the third main risk factor currently affecting CFOs in the CNBC survey and was the major risk when just looking at European CFOs. Weakening consumer demand – closely linked to the threat of deflation - was the second major risk that both Asian and European firms were facing.
Consumer prices for the euro zone rose 0.3 percent in November from the same period a year earlier, according to a flash estimate from Eurostat last week. This was down from 0.4 percent in October and in line with market expectations. Mario Draghi, the president of the European Central Bank, has launched a slew of easing measures this summer to try to boost inflation back up to desired levels and market watchers have been busy placing bets on whether he could be ready to announce more.
Inflation figures have been further complicated by a dramatic fall in the price of oil, which has lost around a third of its price since July. For some economists, the price drop is simply an indicator of how demand has eased in the global economy as investors await to see how the story plays out in 2015.
Clarification: Following a change in methodology, this article has been amended to show that euro zone deflation was the third main risk factor and weakening consumer demand was the second.