Q. The media seems to be convinced that things cannot get worse so can I begin to budget for a gradual improvement?
A. In a previous column I cautioned that the turning point of a recession is harder to call than the onset. You may recall that there was no consensus about the likelihood of a recession happening and hardly anyone predicted the chaos that has ensued. Moreover, most economists have classified this event as the most pernicious since the great depression of the 1930’s, saying the a ‘V’ shaped recovery was unlikely. Yet if we extrapolate the recent press comment, a ‘V’ shaped event is in fact what we’ll get, with UK growth resuming in the final quarter of 2009. I’m cautious: this scenario is what we would all hope for and we tend to favour data that appears to suggest the best case. There are undoubtedly some encouraging signs but without a resumption in bank lending I cannot see how recovery in consumer sentiment can be translated into a sustained economic recovery. Green shoots are always vulnerable to an early frost and even if this is the economic spring it is simply not robust enough to withstand another shock.
My advice is to be cautiously optimistic but wary of a ‘W’ shape with another decline following a brief period of apparent recovery. I would regard the next nine months as likely to be a fragile period in which there is an equal chance of growth and decline. Also bear in mind that more companies tend to fail in the 18 months following a resumption of growth than did so in the decline phase of the recession. If you are a business-to-business company then be wary of the credit risk amongst your customers. You should construct a 12-month budget as usual but revise it, at least, every three months as no one can say for certain what the conditions will be in months six to 12. Plan to ensure that your business can survive a period of 12 months with no real improvement in the economic conditions. The key indicators will be a resumption in the growth of net bank lending, sustained growth in mortgage lending and the ability to credit insure customers without difficulty. Any two is good. All three is a recovery in progress. Don’t gamble on economists calling an end to the recession that they failed to predict.
*Anthony Holmes is an international corporate turnaround specialist and transitional leadership expert. He has led the revival of seven companies over 15 years and his 30-year international business career spans strategic consultancy, investment banking and senior corporate management in a diverse range of industries. Holmes’s book Managing Through Turbulent Times is out now with another, A Time to Lead, A Time to Manage, to follow.Related articles