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Monday
Aug222011

Will the Recession Ever End?

by Darren Shirlaw

You can download this article as a pdf [295kb] by clicking here

Four years on, people are still feeling the massive fallout from the recession that began in 2007. It seems they are just about out of energy these days and our clients tell us there are fewer deals around.

Because businesses are pessimistic about the immediate future, they are cautiously hanging on to their cash and this approach seems logical. After all, some analysts have been predicting a recession end-point of June 2016. When they hear this, few businesses will be investing money unless a really good opportunity comes along.

Start of the recovery

However, things are looking up. The economic clock (see diagram) suggests we are currently at 8pm, described as a "hesitant and uneven recovery".

Judging by people’s business behaviour, most are focusing on the word hesitant. Uneven means the market is swinging up and down because confidence is lacking. The economy is still fragile and the last few weeks have emphasised this fragility. When people were unsure whether the European Union would support Greece, the markets fell away noticeably. But as soon as the EU backed Greece the market bounced up again.

Recovery is the third word in the economic clock description and although it's hesitant and uneven, it's still recovery.

Previous articles describe how increasing commodity prices have indicated an initial economic recovery. But more recently, people have been asking why commodity prices have dropped. The simple answer is that once everyone has restocked, businesses will reduce inventory again where they don't yet have demand at the retail level.

This situation is all part of a natural and predictable macro-economic recovery phase. As people begin to see this, they’ve been asking about the next boom. They hope to come out of the recession and into a major bull market, but this is unrealistic. Rather like a heavy train, the economy needs a little momentum and then a little bit more before it can eventually move off with confidence.

How global is the recession?

I spoke to 90 people recently, representing 22 countries, and was fascinated to hear their different views on the global economy. For example, Australia and Poland haven’t been in recession for more than 20 years. But the Australians still feel gloomy and are hanging onto their money because of the overseas recession news.

The Asian market is particularly buoyant, yet manufacturers in the back lots of China are also depressed. They say, "Three or four years ago we were booming and had 12% GDP growth. But now we've only got 6%. It doesn't feel as good as it did." Interestingly, the Chinese increase in GDP is the same size as Greece's total GDP.

At the other extreme, people from Portugal, Ireland, Greece and Spain are having a tough time. The current recession is really only a Western phenomenon because the world economy is actually quite disparate. Some parts are buoyant while others are almost bankrupt and this unevenness is creating the hesitancy.

If you were a global exporter considering the macro-economic picture, you'd probably be targeting Asia Pacific and Brazil rather than Greece or Ireland right now. Similarly, at a micro level some companies are booming while others are on their knees. The world economy is certainly uneven, but this unevenness also applies to businesses locally.

You can make money – even now

There is no point sitting in the corner with the sheets pulled over your head while you wait to wake up in a couple of years' time. You can make money in an uneven economy, but you need to focus.

A good business, with good sales people and good products will easily make money in this market - and some people definitely are making money.

There are business opportunities out there, you just have to go and find them.

This article was first published in our UK newsletter. Sign up for your copy today, and receive the Shirlaws book More money, More time, Less stress as our welcome gift.

 

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