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CEO Survey: As economic outlook brightens, global uncertainty casts a shadow

As they continue to grapple with lingering <a target="_blank" href="https://visionfund.com/insights/leading-a-high-growth-company-through-an-economic-downturn">economic uncertainty</a>, CFOs of growth-stage tech companies are quickly turning their attention to a new disruptor: artificial intelligence. With the promise of generative AI now firmly ensconced in the zeitgeist, CFOs are taking notice: 69% plan to invest in generative AI technology, according to our most recent survey of more than 100 CFOs, fielded in May. And amid questions about possible AI-driven disruption to business and society, CFOs were nearly unanimous in their belief that AI will increase productivity.CFOs’ interest in AI doesn’t mean their concerns about the economy, inflation, or the financing environment have faded. But their views on those issues have become more nuanced, suggesting that their worst fears may be receding. Indeed, while many CFOs remain bearish, their attitudes are more positive now than in May 2022, when we fielded our <a target="_blank" href="https://visionfund.com/insights/data/2022-cfo-survey">previous CFO survey</a>. There are even some signs of optimism: “Equity investors are dipping their toes into the water again,” one CFO told us. Another saw “fewer macroeconomic clouds.” Here’s a closer look at what’s top of mind for CFOs, as well as their views on the fallout from the collapse of Silicon Valley Bank in March 2023, as they tackle the second half of the year. You can explore the full survey results, and filter by region, sector, and stage, via <a target="_blank" href="https://visionfund.com/insights/data/cfo-survey-recession-or-soft-landing-in-2023">Sōzō Pulse</a>.

<h2>1. Generative AI comes into sharp focus</h2>Generative AI has exploded onto the global scene, generating expectations that big money will follow. Over the next decade, the generative AI industry is expected to grow at a compounded annual rate of 42% to a $1.3 trillion market, from $40 billion in 2022, according to a June 2023 report by Bloomberg Intelligence. The CFOs in our survey are paying attention. Not only did a large majority say they plan to invest in the technology, but also optimism about the impact of AI on business is virtually unanimous: 95% said that generative AI will improve productivity. But there are notable geographic differences when it comes to how quickly the technology will have a significant impact on their companies. In the United States, 30% of CFOs said the technology will have a major impact on their companies in 2023, compared with 13% in Asia and the Middle East, 12% in Europe, and 7% in Latin America. That means that of the CFOs who believe AI will have a major impact on their companies this year, 70% are in the US. When viewed by sector, 44% of consumer companies said that generative AI will have a major impact on their companies this year, compared to 18% for fintech companies, 16% for enterprise companies, and just 7% for health tech companies. But while interest in AI is surging, CFOs were split over how quickly it will impact their company’s finance operations. While just 5% say AI will impact finance operations in the next six months, 25% said the impact will happen over the next year, and another 43% over the next two years. Just 27% said they don’t expect AI to have an impact on finance operations in the foreseeable future.And CFOs are already actively thinking about how to put it to work in the finance department, and finding plenty of use cases.

<h2>2. The economic outlook (mostly) improves</h2>Gloominess about the global economy continues, but the level of apprehension has diminished significantly from a year ago. Just 50% of respondents said they are less optimistic about the economy compared to last year. That’s a marked reduction from 80% a year ago. Meanwhile, 26% said they were more optimistic about the economy, up from 11% a year ago. When pressed on what to expect after a sharp rise in interest rates in the US and elsewhere, the CFOs’ response could be described as cautious optimism, with more than two-thirds expecting a mild recession or a soft landing. And when it comes to equity markets, bulls vastly outnumber bears, with 68% of respondents saying the S&amp;P 500 will be higher a year from now, compared to just 8% who say it will be lower.

CFOs also said they were eager to see clearer signs that the economy is improving, which could include “the slowing down of interest rate hikes,” “continued investment into tech by government and business,” and “inbound calls from investment banks.”

<h2>3. High interest rates pose an increasing challenge</h2>After a steady global rise in interest rates, the higher cost of borrowing has emerged as a top issue for CFOs. Nearly half of CFOs said high interest rates will have a major impact on their business in 2023, up from 31% a year ago. The regional and industry differences here too are notable. Thirty-four percent of US CFOs and 33% of those in Asia and the Middle East said higher interest rates would be a major issue for their companies this year. But those numbers roughly double to 71% in Europe and 73% in Latin America. To mitigate the impact of high interest rates, a majority of CFOs said they are changing their approach to treasury management and making tactical decisions to get the most out of their money.

<h2>4. Other top concerns fluctuate year to year</h2>Further challenges that remain top of mind for CFOs include inflation, the financing environment, and market volatility—though those issues have ebbed and flowed from a year ago. Inflation is a case in point: 50% of CFOs said it was an issue that will impact their companies this year, just slightly down from 54% a year ago. But 92% of this year’s respondents are forecasting inflation’s return to normal levels by the last quarter of 2024, while just 6% said inflation will take longer than 24 months to level off. In contrast, concerns about the financing environment have grown, with 74% saying it is more difficult to raise money now than it was a year ago.Other concerns CFOs raised a year ago appear to be fading in importance, with just 21% citing hiring challenges, 10% citing supply chain issues, and 11% pointing to geopolitical concerns. As one European CFO noted, “though the war in Ukraine continues, further escalation seems unlikely.”

<h2>5. Banking concerns came and went</h2>The shutdown of Silicon Valley Bank in March 2023 prompted changes at many high-growth companies, with 67% saying they modified their approach to treasury management. Not surprisingly, those changes were most pronounced in the US, where 83% of CFOs said they had done so, compared to 59% in Europe, 47% in Asia and the Middle East, and 40% in Latin America. Remarkably, companies quickly adapted and appear to have moved on. A large majority of companies said they’ve diversified their banking partners and moved more cash to larger, better capitalized banks. Overall, the companies in our survey increased their average number of banking partners roughly from four to five. And just 20% cite instability in the financial services industry as a major issue they expect to face in 2023.

CFOs are cautiously optimistic about sidestepping a recession

CFOs - Q2 2023

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