A BUBBLE BURSTING?
Skittish markets, pricey oil, and US gyrations have Asia’s CFOs a little worried.
By Tom Leander

Despite expectations for double-digit earnings growth and plans for increased capital and technology spending, CFOs in Asia are becoming more pessimistic about the regional economy. The persistent high price of oil, uncertainty over the US economy, and fears over declining consumer demand in the region were among the reasons for the rise in pessimism.

These are some of the conclusions of the June 2006 Duke University/CFO magazine Business Outlook Survey, which every quarter asks CFOs from a global range of public and private companies about their expectations for the economy. The survey concluded June 1 and generated responses from 980 CFOs, including 215 from Asia, 181 from Europe, and 584 from the US. The survey of European CFOs was conducted jointly with RSM Erasmus University in the Netherlands.

Business optimism about Asia’s economy declined significantly, with only 54% of Asia’s CFOs saying they were optimistic about the outlook for the regional economy over the next 12 months. This compares with a response of 67% when they were asked the same question last quarter. At the same time, CFOs’ optimism about their own firms only declined marginally, to 58% from 63%. This is a sign that CFOs are worried that the global economy is moving closer to conditions which may threaten earnings. However, the disparity between CFOs’ declining optimism over the region versus their more sanguine view of their own companies’ outlook shows that some of the pressures facing the economy have yet to affect most firms directly.

CFOs also cited rising labor costs and a shortage of qualified labor as key concerns. US CFOs cited rising labor costs as their number-one concern, followed by waning consumer demand, rising fuel costs, and increasing interest rates. European CFOs listed high wages and salaries at the top of their concerns, followed by waning consumer demand.