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CFO survey cites economic benefits, perils of war in Iraq

A short, successful war will mean positive revenue growth over the next year according to the March Chief Financial Officer Outlook Survey, conducted this week by Financial Executives International and Duke University's Fuqua School of Business.

However, a prolonged war with Iraq would cause revenue to remain flat for the coming 12 months. If Iraq retaliates with weapons of mass destruction or new large-scale domestic terrorism, revenues would fall sharply, according to the CFOs.

If the war ends quickly with a minimum of casualties, CFOs say revenue will increase 8 percent over the next 12 months. If the conflict continues for more than six months, the financial executives say that revenue would remain flat.

And if Iraq retaliates with weapons of mass destruction against U.S. troops or with domestic terrorism, revenue will decrease by 8 percent. In this final scenario, 76 percent of respondents believe that revenue will either be flat or decrease.

"It is important to keep these numbers in historical perspective," says Professor Campbell R. Harvey of Duke University. "During the last five recessions, sales revenues actually increased. It is very likely that the long war scenario, with zero sales growth, will push us back into recession."

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As for the response to the possibility of strong retaliation by Iraq, Harvey says, "We haven't seen negative 8 percent sales growth in the last 40 years. This magnitude of reduction in sales revenue could quite possibly lead to a severe economic contraction."

Corporations are deferring capital projects because of war-related uncertainty. In the survey, 67 percent of CFOs say they are spending cautiously or holding off all capital investment.

Polled on the eve of war, the CFOs were less optimistic about the prospects for the U.S. economy or their own individual company's financial prospects than they were last quarter or the quarter before when their optimism was first gauged. In the current survey, a record 45 percent are less optimistic about the economy, compared to 15 percent last quarter. Forty percent, another high, are less optimistic about their own company, up from 23 percent last quarter.

The CFO Outlook Survey interviewed the CFOs of U.S. companies electronically the third week of March. For the question about revenue in different war scenarios, 186 CFOs from both public and private companies from a broad range of industries, geographic areas and revenue responded.

FEI and Fuqua have conducted surveys gauging the country's economic outlook from the perspective of corporate CFOs for the past seven years.