Corporate Risks: The CFO's Worry Barometer

As temperatures drop, so does the economic slowdown in Switzerland. This, at least, is the expectation of CFOs in Switzerland, as a recent survey by the audit and consulting firm Deloitte shows. The CFOs surveyed assess the economic situation for Switzerland and its most important trading partners significantly more negatively than before.

Major business risks

According to the survey, the list of concerns of the CFOs surveyed is dominated by three risks, with only minor shifts compared with the spring: A possible economic downturn is now at the top of the list of concerns. There was no change from the last survey in terms of labor shortages. A labor market that remains robust and where there is a lively search for workers offers a certain degree of protection against an economic downturn. An imminent economic downturn with a simultaneous labor shortage is therefore a rather unusual combination, writes Deloitte in connection with the survey. Concerns about persistent inflation are in third place, even though price increases have weakened recently. CFOs' inflation expectations are also declining - they expected inflation to reach 1.7% in two years, it said. This compares to 2.2% in the spring. The current development with upcoming price increases, for example in rents and energy costs, shows that the danger has not yet been averted and that the economic situation remains unstable, according to Deloitte.

It was also interesting to note that the CFOs surveyed attributed a sharp decline in importance to geopolitical risks compared with the spring (now 10th place, down from 1st place six months ago). However, the latest geopolitical developments indicate that no stabilization is likely in the short to medium term, which continues to pose challenges and risks for companies.

"The combination of weak demand, labor shortages and inflation is unusual and depresses business sentiment," Alessandro Miolo, Managing Partner Audit & Assurance and member of the Executive Board of Deloitte Switzerland, analyzes the survey results. "Even though the Swiss market has shown itself to be stable and resistant to the crisis in international comparison, we must not sit back. Global economic uncertainties and the strong Swiss franc present us with major challenges when it comes to securing future economic growth, the stability of our market and the long-term prosperity of Switzerland."

Awareness of cyber security is growing

Cybersecurity is also coming into sharper focus, as Deloitte writes. For the first time since 2021, it is again among the top 10 risks for companies. This rise in priority is due to the ever-increasing number of cyberattacks on companies, which often have serious consequences for business operations and result in ransom demands and extortion attempts. The swissVR-Monitor survey of board members conducted by Deloitte in the spring and summer had shown that 45 percent of companies with more than 250 employees had already been the victim of a cyberattack at least once. The now higher weighting therefore indicates a greater awareness among the CFOs surveyed of this acute problem area, he said. "Cyber security is back in the top 10 risks, mainly because of increasing threats. In addition, companies and CFOs are concerned about the potential cost of cyberattacks, especially in terms of business disruption. The issue, they say, must now be an integral part of companies' risk evaluations. Fortunately, many companies have already recognized this," says Alessandro Miolo.

Generative AI: high relevance for financial forecasting and prevention

In addition to the general economic outlook and risks, CFOs were also asked about generative artificial intelligence (AI) applications. Categorically, only a very small number of companies (8%) ruled out the use of generative AI, the consultancy writes. The survey shows that most companies are only at the beginning of integrating AI: 23 percent of the CFOs surveyed said they are currently experimenting with it in their company. The vast majority currently want to wait and see, or at least observe what their competitors are doing. The biggest obstacle to introducing generative AI into existing work processes was cited as a lack of personnel capacity - day-to-day operations or adjustments to new market conditions are already stretching personnel capacity to the limit. However, the CFOs surveyed indicated that they believe generative AI has high potential. For example, according to the survey, more than 60 percent of respondents each said that generative AI will be highly relevant in making financial forecasts or preventing fraud and abuse.

CFOs also expect high levels of AI implementation in financial report analysis or cost optimization, according to the survey. "Generative AI has enormous potential, but few companies are using it yet. The gap between high potential and low usage is a clear opportunity for competitive advantage. Companies should not hesitate and watch the competition, but start implementing and testing generative AI applications immediately. Companies should not neglect risks such as data privacy and security, intellectual property rights, and the quality of AI results," explains Alessandro Miolo. "With a
successful AI implementation, companies thus generate an 'edge over the competition' from 'not losing out'."

The current, 46th Deloitte CFO Survey in Switzerland was conducted online from September 5-29, 2023. Download the study here.