STILL HANGING ON…
CFOs in Asia and China are less sanguine about the economy, but still have high hopes for earnings.
By Don Durfee

The economic news just isn’t improving. According to the latest Duke University/CFO Magazine Business Outlook Survey, CFOs—already downbeat—are succumbing to a new level of gloom.

But there is one anomalous bright spot: Asia, where CFOs are forecasting a sharp jump in earnings. Last quarter, the region’s CFOs (excluding China) predicted a 9 percent rise in profits in the coming 12 months. This time they forecast a 17 percent jump. In China, finance chiefs predict an 11 percent increase. Spending plans for both Asia and China are edging upward, too—forecasts for capital spending, advertising/marketing, and technology expenditure are all higher.

Further evidence that Asia is decoupling from Western economies? Not entirely. The strong earnings forecast likely reflect continuing strong growth in Asia’s biggest markets, India and China. But many CFOs predict that problems in the United States and Europe will soon catch up with local economies. One is Rebecca Norton, VP of Finance Asia Pacific and Japan for software vendor Business Objects, which has been growing quickly in Asia. “There’s no slowdown here,” says Norton. “But one has to expect that it’s going to come.”

She isn’t alone. 51 percent of Asian respondents say that declining export demand from the West will eventually hurt earnings. (Of those who think they’ll be immune, most think that domestic demand growth will shield them.) Given that 90 percent of CFOs in the United States predict that their country’s economy won’t recover until 2009, this could turn out to be a major problem. Such uncertainty may not be showing up yet in average capital spending plans, but it will affect M&A, according to respondents. Last quarter, 42 percent of CFOs in Asia outside of China said they would engage in M&A over the coming year. Now, only 29 percent plan to.