Member Article

Euro break-up poses biggest threat to business

The break-up of the euro poses the biggest single risk to the UK’s biggest businesses in 2012, new research has shown.

Many businesses believe that European politicians and policy makers have failed to formulate an adequate response to the financial crisis. Almost 1 in4 believe that one or more members states will leave the single currency in the next year.

A large proportion of CFOs are concerned at the collapse of the euro could have a damaging effect on UK businesses and could result in a return to recession, driving major swings in asset prices and exchange rates.

Paul Feechan, office senior partner at Deloitte in Newcastle commented: “ Against such a backdrop it is no surprise that a return to recession in the UK is, after the euro the second biggest concern for CFOs in 2012.

“Many CFOs are now working on the assumption that the UK will fall back into recession.”

Figures show that 54% of CFOs believe that the UK will suffer a double-dip recession, up from 27% a year ago, Over 60% of respondents expect that there will be a prolonged period of weakness lasting more than a year.

Many larger corporates are already suffering difficulties, with CFOs reporting the sharpest decline in credit availability since Q3 of 2008.

The number of businesses rating levels of external financial and macroeconomic uncertainty as being “high” or “very high” has also doubled from 26% to 56% in the last quarter. Few CFOs are prepared to take on additional risks, and are entering the new year with a focus on cutting costs and increasing cash flow.

Mr Feechan added: By and large, big corporates in the UK have the firepower to spend.

“The challenge for policymakers in 2012 is to convince them that it makes business sense to do so.”

Nonetheless, the difficult climate still presents opportunities. According to Ian Stewart, chief economist at Deloitte, almost half of all CFOs have identified new growth areas.

He added: “Despite the uncertainties, 48% of CFOs have identified growth opportunities.

“One-third see opportunities to acquire undervalued assets; 30% think weaker competition provides a chance to expand market share; 19% believe that a difficult economy gives them a chance to implement overdue changes to their businesses.

“Some foresee new sources of demand, with 12% of CFOs planning to develop new offerings to meet needs created by a difficult macro environment.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .