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According to a recent survey, U.S. CEOs’ near-term economic expectations continue to sink from last quarter hitting the lowest level since 2012. Analysts blame stalling corporate tax reform and erratic global economy for the situation.
The survey, which was released Dec. 2 by a trade association of the U.S. leading chief executives called the Business Roundtable, also shows that top businessmen have lower prospects for sales and investments on the short term. For this reason many members of the Business Roundtable said that they would cut capital investments until summer.
The index that measures CEOs sentiment about the U.S. economic growth dropped for a third consecutive time to 67.5 from 74.1 in Q3.
The index usually stands at 80.1 and it hit the lowest level during the Great Depression between 1929 and 1939. At that time it fell to minus 0.5. The highest level was recorded during the recovery at 113.
Although many survey respondents said that they would curtail capital investment on the short run, they also said that their companies plan to increase number of open positions by 35 percent by next summer.
Analysts believe that CEOs’ grim view on the economy is caused by several factors.
For instance, the recent terrorist attacks in France made both companies and their customers more cautious. Additionally, a strong currency and stalling global economic growth had a negative impact on exports.
U.S. CEOS are also concerned by Congress’ action on renewing some crucial provisions in corporate tax code that were designed to ease companies’ access to research and development.
Furthermore, the U.S.’ corporate tax of 35 percent is the highest in OEDC, an international consortium of developed countries. This is why, major corporations often resort to corporate inversion to dodge domestic taxes by moving their headquarters to other countries with a more lax tax system.
The latest case of corporate inversion is Pfizer, which last month purchased Dublin-based Allergan and moved its offices in Ireland, where corporate tax is lower. The merger is expected to bring Pfizer $2 billion in tax savings over the next three years.
Analysts say that we may have no power over China’s economy or falling oil prices, but we can alter tax code to prevent U.S. corporations from fleeing the country. The Business Roundtable is now pushing for lower taxes for corporations, and some members of the congress expressed their support for such measures including some tax breaks for major contributors. But new legislation is not expected to be passed before 2016 presidential election.
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