Credit Crisis Not Over, But Expect Soft Landing in 2008
December 17, 2007
AFP Staff Writers

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U.S. financial professionals believe the U.S. economy will weaken over the next 12 months but will not slip into recession in 2008, according to results of a new survey conducted in early December by the Association for Financial Professionals (AFP). More than a third of the survey respondents also expect their organizations to expand their U.S. workforce in the coming year.

Financial professionals expect gross domestic product (GDP) to grow modestly in 2008, with the median prediction at 2.5 percent. Only four percent expect the economy to contract in 2008.

After a year that featured a falling U.S. dollar, highly volatile energy prices, a deteriorating housing market, and a sub-prime mortgage crisis impacting parts of the credit market in the late summer and fall, financial professionals are less optimistic about business conditions than at the beginning of 2007. Forty-nine percent of financial professionals expect business conditions to weaken during 2008, while 37 percent expect business conditions to remain the same. Fourteen percent of respondents, however, expect the economy to pick up in 2008.

"The financial professionals we surveyed have a deep, comprehensive understanding of the market forces and business dynamics affecting the U.S. economy," said Jim Kaitz, President and CEO of AFP. "They are managing operations affected by credit, employment, and dollar valuations day in and day out, leading corporate borrowing and business investment initiatives, and working in a wide range of industries and in public and private organizations of varying sizes. Their views are excellent indicators of future business conditions."

Top concerns of financial professionals are the decline in the U.S. dollar, rising energy prices, and the housing market. Eighty-two percent of financial professionals are paying closer attention to the declining value of the U.S. dollar; 63 percent of respondents believe the U.S. dollar will continue to decline against the Euro, while 54 percent expect the dollar to decline against the yen. With regard to energy prices, 30 percent of financial professionals believe energy prices will increase significantly during 2008; 56 percent believe energy prices will increase but only "slightly." Home prices, respondents believe, will continue to decline in 2008.

The turmoil in credit markets resulting in part from disruptions in the sub-prime mortgage sector has had some impact on corporate credit, according to survey respondents. Most financial professionals believe credit markets may suffer more disruption in 2008. Sixty-six percent of financial professionals believe the worst of the credit turmoil is not yet over, while only 15 percent of respondents think the opposite.

A positive sign for business though is that access to credit has remained stable over the past six months. Seventy-three (73) percent of respondents indicate that there has been no change in their organization’s access to short-term credit over the past six months with 77 percent reporting the same in regards to long-term debt. Relatively few financial professionals believe their organization’s access to credit will deteriorate in 2008, even in a tightened credit market environment.

In terms of hiring, slightly more than one-third (36 percent) of financial professionals report that their organizations plan to increase their U.S. workforce over the next year, while 39 percent expect that their organizations will maintain current workforce levels.

Between November 29th and December 11th, AFP surveyed U.S. financial professionals about current and expected business conditions in the U.S. The survey generated 651 responses from professionals holding a variety of positions within their organizations, including CFO, VP of finance, and treasurer and assistant treasurer. The results produce a margin of error of +/- 3.8 percent. The full survey report is available at http://www.AFPonline.org/research.

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