Australian CFO economic optimism rises while business confidence falls

The Australian

7 days ago

Chief financial officers at some of Australia's largest companies are feeling more bullish about the domestic economy than they have in years. But at the same time, confidence in their own organisation's performance has fallen.
That's according to the latest edition of Deloitte's biannual CFO Sentiment report. Based on a survey of more than 60 CFOs, it found that the share of respondents feeling optimistic about the economy has nearly doubled in just six months. This has driven net optimism in the economy to its highest level (23 per cent) since the end of 2022, when the series began tracking economic sentiment.
In that same period, net optimism about business prospects has fallen 16 percentage points to 49 per cent in H1 2025. If that seems counterintuitive, you would be right. Sentiment about the Australian economy and business performance have always marched in lockstep — until now.
When business leaders are feeling bullish about the economy, they almost always feel more optimistic about their organisation's prospects. What's different this time, and what does it mean?
It all comes down to one word: uncertainty. Deloitte's report shows net uncertainty among CFOs has surged 13 percentage points to 92 per cent, its highest level in over two years.
This has a corresponding effect on the willingness of businesses to take on risk. Although buoyed slightly by stronger economic conditions, CFOs do not currently have much appetite for risk. With lower risk appetite comes lower investment, and with lower investment can come weaker business performance.
When it comes to what is causing uncertainty, the elephant in the room is, of course, the US administration's will-they-won't-they approach to tariffs and trade negotiations. Most CFOs (84 per cent) believe recent changes in global tariffs will have a negative impact on the Australian economy.
Stephen Gustafson is CFO Program Leader at Deloitte Australia
David Rumbens is a partner at Deloitte Access Economics
However, far fewer believe that these tariffs will negatively impact their own business, and most CFOs are delaying concrete actions in response to them. Additionally, the collective growth in overall economic optimism implies that the surveyed CFOs do not foresee changes to tariff policy having a large impact on the Australian economy.
That means there are other factors causing uncertainty. The financial conditions of many businesses remain challenging, with compressed margins and weak profitability continuing to weigh on business outcomes, despite an ostensibly improving economy.
While the economy is doing better than it was, that does not mean that it's yet in fantastic health. Yes, interest rates and inflation are both coming down from recent highs, but the economy continues to grow slowly and has spent eight of the past nine quarters going backwards in terms of GDP per-capita.
Meanwhile, household spending remains subdued as Australians get over the cost-of-living crisis and look to rebuild their savings. This is making conditions tough for business, with margins compressed and profits low. While input costs have stabilised, many businesses are reluctant to pass on further price increases to consumers already grappling with affordability concerns.
So, while the economy is strengthening, it is uncertain as to what extent business conditions will improve too. This is perhaps why competition, pricing and costs, taken collectively, is the most common perceived external risk to the respondent CFOs' businesses.
Looking to the year ahead, a greater share of CFOs expect a fall in profit margins (28 per cent of respondents) and employment (39 per cent) than recorded six months ago. This indicates businesses may be looking to right-size their workforce in response to challenging conditions.
However, it's not all bad news: nearly one in two CFOs (48 per cent) expect capital expenditure to increase over the next 12 months, up from 35 per cent six months ago, indicating many businesses are planning for the long-term by expanding their capacity.
Boosting productivity is one of the clear solutions to the low-growth holding pattern many businesses – and the Australian economy at large — are currently trapped in. The recently re-elected federal government has made productivity a focus area, with a productivity summit scheduled for later this year.
Some productivity-enhancing reforms combined with rising capital investment and falling interest rates could help business confidence lift over the next 12 months.
These factors are reasonably in our control. The ebb and flow of global trade policy, however, is not, and this — alongside emergent global conflicts — will likely contribute to a persistent level of uncertainty over the coming year.
But given it's been over five years since net uncertainty fell below 75 per cent, Australian CFOs are not in unfamiliar territory.
Stephen Gustafson is CFO Program Leader at Deloitte Australia. David Rumbens is a partner at Deloitte Access Economics.
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