JEDDAH: An uptick in inflation would pose notable risks for many firms across US and Asian economies where optimism on economic outlook has risen to the highest levels since 2007, University/CFO Magazine latest quarterly Global Business Outlook Survey showed. The survey done in collaboration with Tilburg University in the Netherlands, polled more than 850 chief financial officers (CFOs) from a broad range of global public and private companies about their expectations for the economy. "Many of our surveyed firms have grave concerns about inflation," said Campbell Harvey, a professor of finance at Fuqua and founding director of the survey. "We asked these inflation-vulnerable firms what would happen to earnings growth if there were 'surprise' inflation of 4 percent in 2011 compared to the current rate of 1.5 percent. The CFOs report that in such a scenario, earnings growth would be slashed by an astonishing 48 percent." In general, the results of the poll suggest that CFOs expect to see robust growth in expected earnings and capital spending. CFOs are at their most optimistic since the first quarter of 2007, with 56 percent of US CFOs saying their optimism has increased this quarter. By comparison, 39 percent of European CFOs say they are more optimistic, while 65 percent of Asian CFOs are more optimistic. US firms expect to increase their full-time workforce by just over 1 percent in 2011. Hiring will be strongest in sectors like energy, transportation and retail/wholesale, while employment will decrease in construction and media. Employment is expected to rise by about 9 percent in Asia and decline by less than 1 percent in Europe. "Increasing optimism is good news for the US economy going forward," said John Graham, professor of finance at Duke's Fuqua School of Business and director of the survey. "Historically, we have found that increases in optimism lead to stronger GDP growth, spending and employment within a year." With optimism in Europe trailing the rest of the world, two-thirds of European CFOs do not believe that the European Financial Stability Facility is adequate to safeguard financial stability in Europe. CFO optimism has increased, rising to the highest level since early 2007, the survey showed. Earnings growth (18 percent) and capital spending growth (12 percent) will be robust over the next year, according to CFOs. Dividends will soar by 14 percent, the largest quarterly increase in the history of the survey. Employment growth will be modest (1.2 percent) overall. However, some industries identify a need to hire skilled workers in engineering, product development, information technology, finance and accounting, and sales. Inflation concerns have increased. CFOs who say an increase in inflation would affect their business estimate that inflation of 4 percent would cut earnings growth in half. Overall, 39 percent of companies find borrowing conditions have improved compared to fall 2009. The smallest firms (revenue under $100 million) say credit is still tight. Moreover, the survey revealed that CFOs are at their most optimistic since the first quarter of 2007, with 56 percent of US CFOs saying their optimism has increased this quarter.
