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10 things for CFOs to worry about in 2012

Peter Bartram | Nov. 15, 2011
Sovereign debt crises won't go away.

"With UK growth weak and the Bank of England happy to introduce more quantitative easing, there is little scope for sterling to rally," says Richard Driver an analyst at Caxton FX.

"The plight of the pound will be determined by Europe to a large extent, as the euro is intrinsically linked to sterling right now," adds Chris Redfern, senior dealer at Moneycorp.

"If the UK can avoid a double-dip recession and muzzle rising inflation, the pound will slowly start to strengthen. If the European debt crisis isn't resolved and the euro weakens, so will the pound."

Uncertainty will make decision-making more difficult to CFOs whose companies are exposed to FX movements.

6. Pressure on margins will continue

Figures up to the end of the third quarter showed input prices for manufacturers rising at 16.2 per cent a year. There will be continuing rises in 2012, even if the headline figure declines slightly in response to stabilised energy costs.

But most companies will face price and margin pressure from customers as wages continue to lag behind inflation and the number of unemployed continues to rise.

CFOs will need to seek innovative ways to contain the pincer movement of both input and customer-led price pressure in order to defend margins.

7. Inflation may reduce more slowly than expected

The conventional wisdom says that inflation will decline from a peak of more than 5 percent in 2012 to around 3 or 4 percent in 2012 - and by more thereafter. However, the quantitative easing (QE) programme launched by the Bank of England could intensify inflationary pressures, especially if QE is extended from the initial level of £75 billion.

The first £200 billion round of QE added around 1.5 percent to inflation, according to the Bank of England.

"The best way to avoid further bouts of instability is to return to a semblance of economic and monetary orthodoxy," says Stephen Gallo, head of market analysis at Schneider Foreign Exchange.

"Doing so involves central banks taking tough decisions, not printing more money."

8. Banks may need to be recapitalised (again)

With the prospect of "taking a haircut" on Greek debt and an increased level of corporate insolvencies, banks may need fresh recapitalisation. An autumn meeting of European finance ministers suggested the continent's banks may need €106 billion of new capital but the International Monetary Fund has suggested it could be around €200 billion and possibly as much as €300 billion.

Faced with this need, CFOs may find that banks continue to be unenthusiastic about corporate lending as they rebuild their own balance sheets.

9. Watch out for more insolvencies

Restructuring specialists are predicting a high level of insolvencies in 2012. This means that CFOs will need to be especially vigilant on credit controls if they are to avoid the risk of bad debt levels rising.

 

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