By Rohit Talwar
Over the last couple of months we’ve witnessed a growing sense across the business and government sources that we talk to that we are heading for a multi-dip recession. While most of the European Union countries have officially pulled out recession, the UK is still struggling to launch and President Obama is issuing ever-starker warnings about the risk of a double dip recession.
Conversations with investment bankers and those with connections ‘on the inside’ of the banking system are all suggesting the potential for a massive collapse that could make the last two years look like a minor correction.
However, rather than a double dip, our view is that we are looking at more of a roller-coaster decade in which we will see regular rises and falls in different economies around the world. Our colleague Ian Pearson refers to this as a ‘Loch Ness Monster’ downturn — with uneven peaks and troughs emerging with very little warning. The pain will be felt quite unevenly. Those economies that have done most to curb or prevent their banking system from entering into huge leveraged debt transactions and complex high volatility derivatives contracts are likely to fare best — or suffer the least relative pain.
Perhaps the most apocalyptic view in recent weeks came from Société Générale in its ‘Worst Case Debt Scenario’ report which warned clients to prepare for a possible "global economic collapse" over the next two years. They highlighted that total US public and private debt was now 350 per cent of GDP and many years of deleveraging would be inevitable — even without further shocks. The report warns that even without any new public spending, within two years, government debt would rise to 125 per cent of GDP in the US and the Eurozone, 270 per cent in Japan and 105 per cent in the UK. They estimate total global sovereign (state) debt could reach $45 trillion - a rise of 250 per cent in a decade. Under their "Bear Case" scenario, we would see a further fall in the value of the dollar, a decline in global equity prices, a sharp retreat on property values and oil would fall to $50 a barrel in 2010.
So how do deal with such an apocalyptic scenario. Hope, head in the sand and betting it all on number 36 on the roulette wheel are probably not the most sustainable solutions. As an alternative, here are six ideas from our work on Winning in a Downturn:
• As good leaders it is now incumbent upon those driving public and private sector organisations to do a serious evaluation of the worst case scenario and what their responses might be.
• We need to develop good early warning systems that require us to get as close to funders, customers and business partners to track how their thinking is developing and understand what their responses might be.
• Work with your key suppliers and customers to look for innovative solutions that will cut costs and time from the value chain and improve the quality of the outputs and outcomes. Devote resource to serious open innovation experiments — incentivise all involved to succeed.
• Look for innovative approaches to staff training and development — volunteering, guest speakers, e-learning and shared courses — even with competitors — are all routes to consider.
• Don’t be tempted by mergers as a way out — particularly not between loss-making competitors (BA and Iberia take note). Such events inevitably divert management time and attention to internal politics, alignment and integration — when management’s real focus should be on key customers and the broader the market place.
• Put off technology replacement projects. Even if the straight financial case for laptop or desktop replacement may be strong, think hard about whether you want the inevitable disruption and diversion of staff time and effort and be realistic about what the true performance gains are likely to be.
Rohit Talwar is CEO of Fast Future. He is a Global futurist, award winning keynote speaker and change catalyst working with international corporations and governments to create 'fast insights into alternative futures'. He has worked on six continents — helping him take a truly global perspective. — Find out more at: www.fastfuture.com or email: email@example.com
The economy has understandably been at the forefront of leaders for the last twelve months or so, and probably will do so in 2010. At the Academy for Chief Executives (ACE), the leading provider of experiential business learning, leaders are provided with an outlet for any feeling of isolation and uncertainty by building a community of like-minded individuals around them. The economic situation is one of many subjects The Academy has experts on. For more visit www.chiefexecutive.com