June 30, 2005--Finance professionals -- including CFOs, treasurers, and controllers -- expect moderate economic growth, and ranked energy prices, interest rates, and the value of the dollar as their most pressing concerns for the next 12 months, according to a survey released earlier this week.
Fifty-nine percent of finance managers responding to the Association of Financial Professionals' (AFP) Business Outlook Survey said business conditions will stay "about the same" through the end of the year, while 31% said conditions will improve. The Bethesda, MD-based trade group, also reported that most of its members (81%) expect the economy to grow between 2.0 and 3.9% during the second half of 2005. The prediction came just ahead of a Commerce Department announcement that the U.S. economy grew at 3.8% during the first quarter of 2005.
Of the factors expected to influence business conditions for the next 12 months, souring energy prices were foremost on the minds of respondents, with 58% predicting a "slight" increase and 21% predicting a "significant" increase for the near term. Oil prices have been climbing steadily and reached record highs Monday before falling to just under $57 yesterday. Lawmakers in the Senate responded on Tuesday to concern among small business owners and consumers about gasoline prices by passing a new energy bill that aims to encourage the use of alternative sources. Still, many have questioned whether the law will have a significant impact on prices for the near term.
Taking cues from the Federal Reserve, which has been steadily increasing interest rates since June 2004, the finance managers overwhelmingly expect the trend to continue through the end of 2005, with 90% expecting rate increases. Kevin Roth, director of research for the AFP, cautioned that this does not indicate that businesses will have problems with financing. Indeed, respondents predicting easier access to both short and long term financing far outnumbered those who believed credit availability would decrease. "There's no credit crunch," said Roth. "The market clearing price is just a little higher than it used to be."
The study seemed to indicate uncertainty over the strength of the U.S. dollar, which, after declining against the euro to record lows in December, has gained some ground as hopes for ratifying the European Constitution were crushed by referendum defeats in France and the Netherlands. Predictions about the value of the dollar relative to the euro were split, with 52% of respondents expecting the currency's value to affect business conditions over the next 12 months.