Economic & Business Focus: Recovery Elusive in the Second Half

Short-term prospects for economic recovery are so tenuous that CFOs are focusing on the far horizon.

The world is flat, or so it seems. The barely perceptible recovery that marked the first three quarters of 2002 almost dissolved in the final quarter, as growth decelerated worldwide. In the United States, where only increased federal spending and residential investment kept the economy from tanking again, economists quickly ratcheted down their forecasts for the first half of 2003. They swear, however, that the second half of 2003 will be better and claim that GDP growth for the full year will hit 3 percent to 3.5 percent.

CFOs' planning is decidedly less optimistic. In the latest CFO Outlook Survey by Financial Executives International and Duke University's Fuqua School of Business, respondents' predictions of 2003 GDP growth averaged only 2.4 percent, identical to actual GDP growth for 2002. Almost half of the CFOs surveyed expect 2003 growth of 2 percent or less.

"I hope the forecasters are right, but I'm going to plan for the CFO level," says John W. Cox, CFO of Houston-based BMC Software Inc. He conducts scenario planning, and his scenarios for this year include "a middle-of-the-road case -- an operating plan that we move on internally and base our guidance on externally," he says. "To the extent that the macro environment weakens, we have a plan that would match that scenario as well."

Cox follows fairly strict guidelines to determine which plan the company should follow, "but it's a relatively simple and largely revenue-driven process," he says. "If GDP in September is 2.6 percent rather than 2.1 percent, that may or may not have any implications for how we change our budget. What's more important is how we did with our revenues."