Conditions Remain Tough with Decreasing Optimism Going Forward, According to CFO Survey

Companies expect a weakening sentiment and harder times to come, according to the Deloitte/SEB Chief Financial Officer (CFO) Survey. A quarter of the companies surveyed have performed some kind of stress test regarding a situation where the euro does not exist in its present form. Less than 10% have adapted their operations to such a situation.

The survey also shows that companies have overestimated the euro/Swedish krona (SEK) ratio, meaning that the SEK has strengthened more than expected and companies have underestimated the pace of the strengthening.

The index came in at a lower level than in the February survey and is also lower than in the same period last year. The Swedish CFO sentiment index is now at 48.3, down from 50.5 in February.

“We were interested in whether companies had performed some kind of stress test regarding a situation where the euro does not exist in its present form. It turned out that one out of four of the respondents in fact have performed such a stress test,” said Johan Lindgren, credit strategist, SEB. “However, less than 10% have adapted their operations to a situation where the euro does not exist in its present form. A possible interpretation would be that the companies assign a low probability to such a scenario, or that adapting operations to a situation where the euro does not exist in its present form is too costly or impossible. Taking a pessimistic view on this from a different angel, one might interpret this as 90% or more are not prepared for such a scenario.

“According to the survey, companies have in general budgeted for a SEK weaker than the actual 2012 level. Already in 2011, the SEK was forecasted to strengthen against the euro. Apparently, companies did not budget for such a strengthening and underestimated the pace at which the SEK strengthened. Export-oriented companies with such a mismatch have likely taken losses.

“Companies are still investing, however an increasing number of companies invest financially rather than strategically and more than 50% would use a cash surplus to pay down debt. Investing financially rather than strategically corresponds with the company reports presented earlier this year. Companies are apparently on hold. Paying down debt is still highly prioritised,” Lindgren added.

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