How to beat the recession – part one
31 August 2012
As the Eurozone crisis continues to deepen, Germany and France have finally agreed to work together to find a solution. Meanwhile, the consensus in the UK remains that we should focus on new markets and exporting to lead the way out of recession.
But what exactly is a recession? What impact does a recession have on global trade and how do we export our way out of it? This two-part blog will help to explain what history teaches us about recessions, the impact of austerity on international trading and how, in these most testing of times, businesses can find the means to finance growth.
Recession is defined in a few ways but ‘a recession is a period of time during which output falls and unemployment rises’. There are some who say ‘an economy is in recession if real GDP falls for two consecutive quarters’.
So what does history tell us?
There is one resounding fact that we all should have learnt, which is that we should try and balance our trade deficits with surpluses where possible. This sounds so obvious but the financial based economies have not been doing that. Hoping that the service sectors will support the dwindling manufacturing sectors is naïve, as history shows us.
History has told us that it’s not as easy as printing more money, we really must have a plan for balancing the books. We have also learnt that government intervention is not always the answer; there have been some great examples of good intervention (e.g. Roosevelt’s New Deal), but non-intervention can sometimes allow time for the damage to start healing itself.
Now, what do we learn from the current recession?
Firstly, that using a new economic model won’t work as we have no history to build the model on; economies need to be able to examine history in order to effectively extrapolate the future, or possible future, trends.
Secondly, companies can learn about balancing books and not borrowing too much, and so can countries. We need to realise the importance of workforces and manufacturing or producing something that is satisfying a demand – especially as there is always someone in the background offering an alternative. The law of supply/demand confirms that someone, somewhere, will fulfil that demand, even if it’s not you.
So, how does a recession affect demand? The majority of countries impose austerity on the people who are easiest to target – the working population. Taxes and restraints on purchasing are usually compounded by job cuts and the reduction of grants and spending on public services. Cap this with exchange rate complications, protectionist attitudes and reluctance by banks to lend to businesses and the outlook for exporters seems gloomy at best.
Next week we’ll look at some of these other challenges and how to ensure that your business is at the front of the line when it comes to fulfilling that export demand.