Australian CFOs reflect uptick in risk appetite, optimism as economic sentiment improves

Deloitte has revealed that Australian CFOs are looking to increase their risk appetite and profit expectations as uncertainty returns to pre-pandemic levels and business optimism begins to renew.

The firm noted that this improvement shift could be attributed to a more stable geopolitical and economic outlook, but added that some “tail risks are lingering”.

Deloitte’s latest edition of its biannual CFO Sentiment report said “many CFOs are keeping a watchful eye on inflation, and most believe that the inability to execute strategies will pose a significant risk over the next 12 months”.

The report also reflected CFOs’ sentiment towards AI as adoption continued to grow within the finance function and across the organisation, with many believing it would help them meet their business objectives.

From the data, it was found that net optimism in own business prospects had improved to 63 per cent, up 14 percentage points from the beginning of the year, and net uncertainty fell “sharply” to a seven-year low of 66 per cent.

“This rebound recovered most of the lost ground from six months ago, when uncertainty around global tariffs clouded the outlook and had CFOs bracing for economic impact. Since then, conditions have steadied, and CFOs are looking ahead with greater confidence,” Deloitte said.

“Despite improving, risk appetite remains below pre-COVID levels, suggesting CFO confidence is yet to fully turn into commitment. This could be partly attributed to the economy, with net economic optimism sitting at 22 per cent.”

Geoff Lamont, Deloitte CFO program partner, said that both optimism and pessimism in the economic outlook had risen, suggesting CFOs were increasingly polarised in their views about the direction of the economy.

In addition, resurgent inflation also put the possibility of interest rate hikes back on the CFO risk radar, as 36 per cent of CFOs noted interest rate movements as a top growing risk.

“It’s pleasing to see some genuinely positive signs emerge in this half – confidence up, uncertainty down, risk appetite on the rise. While challenges remain, there is definitely an air of optimism in the CFO community,” Lamont said.

“The improvement in sentiment is supported by a more stable outlook. CFOs have had some time to see how changes to the global trade environment might impact their business operations, while domestically the Australian economy is starting to show signs of life.”

The report provided insight into Australian CFOs’ top risks, which had not changed significantly over the past six months, with the inability to execute strategies remaining at the top of the list for 57 per cent of CFOs.

Risks around technology, AI and data governance were also flagged as the use of technology has become more widespread, bringing a sharper focus to these areas.

Cost control and operational efficiency were also noted to be front of mind for finance leaders and were identified as a high priority for eight in 10 CFOs across organisations and within the finance function.

Many CFOs were also turning to outsourcing certain activities, with 41 per cent of CFOs delegating specific functional responsibilities and 32 per cent offshoring activities to captive centres.

Lamont said these initiatives were helping CFOs make headway with their organisation’s cost management targets, with 45 per cent having said their cost targets had been met, and a further 42 per cent reported clear progress.

CFOs still needed to fully embrace digital financial reporting, despite the Productivity Commission recommending that digital financial reporting be made mandatory in line with the policy settings of several other major economies.

From this, 54 per cent of CFOs said they were indifferent and just 36 per cent supported or strongly supported the move.

“CFOs are looking to optimise business performance but know they can’t cut their way to profitability. Targeted investment in technology uplifts, including AI integration, and the careful implementation of workforce strategies have been emerging themes across the last few surveys,” Lamont said.

“When it comes to digital financial reporting, the results we see today are broadly in line with what we saw when we first asked these questions two years ago.”

“It shows that a stronger case needs to be made around the potential benefits of digital reporting, such as increased access to international capital and the potential efficiency gains from having consistent, machine-readable reporting products.”