Currently, the world’s public health and global economy is suffering — even before the pandemic spread across the nations, there was a looming recession. Economic measures are being taken to account for the increased government expenditure keeping businesses afloat, with Chancellor Rishi Sunak reviewing resident and non-resident capital gains tax on the wealthy. Economist David Blanchflower claimed that the financial world pre-Covid was similar to the period before the banking crash of 2008. From this, we should be taking every step we can to protect our businesses.
Recession Covid 2020
Image by Gerd Altmann from Pixabay
Is an international recession looming?
At the start of this year, the UN warned that we could be facing a global recession in 2020. That was before taking the impact of Covid-19 into account. Factors including trade wars, currency fluctuations, and Brexit were all amounting to an uncertain global economy and the Unctad report, “global growth will fall from 3% in 2018 to 2.3% this year — its weakest since the 1.7% contraction in 2009”.
This combined with the impact of Covid-19, and we are now expecting to be hit with a recession rivalling even the magnitude of the Great Depression (and far worse than the 2008 financial crash). As of June this year, the global growth projection for 2020 has fallen to -4.9 per cent (1.9 per cent below the forecast made by the World Economic Outlook (WEO) in April). In addition, the road to recovery doesn’t look like it will be as fast as the WEO initially predicted, and they are now only forecasting a 5.4 per cent global growth for 2021, 6.5 per cent lower than the predictions before Covid-19. Low income households are expected to feel a particular acute financial impact, and global poverty, which has been significantly reduced since the 1990s, is likely to reach another crisis point.
Due to the impact the global economy has been faced with, we are expected to encounter rising levels of debt in both developing and advanced countries, as well as a “global downturn that could increase unemployment and inequality”, as stated by Kristalina Georgieva of the International Monetary Fund. Redundancies and a decline in job vacancies on an international basis are expected to follow such a crash, with unemployment rates increasing at an alarming rate.
How hard will the UK be hit?
The most recent reports from the OECD (Organisation for Economic Co-operation and Development) look equally alarming. Experts have predicted that the UK will likely be the worst hit country in Europe and the economy is forecasted to contract by 11.5 per cent after the first wave of the pandemic. If we end up seeing a second of Covid-19 later in the year, this contraction is predicted to increase to 14 per cent. One of the major reasons why the UK is likely to feel such a stark economic impact is our country’s reliance on the service industry for our economic growth, a sector which has been particularly damaged by the repercussions of Covid-19.
As well as the economic turmoil Covid-19 has caused, the US trade war with China has caused a larger drag on global growth than anticipated, and the UK will be on the receiving end of the economic repercussions. What’s more, the looming prospect of Brexit poses different threats to the UK’s economy. At best, the uncertainty caused by both Brexit and the Covid-19 pandemic has created a hesitant consumer base in the UK. Customers are spending less and are more cautious of businesses than ever. It is a difficult time to maintain customer loyalty, as would-be consumers are tightening their purses in the fear of a looming financial disaster.
Important steps to protect your business
It is a difficult time, but if we think ahead, we’ll be able to safeguard our businesses against a recession. Businesses that prepare for every eventuality are the ones that not only survive but thrive in the face of adversity. Leaving it too late to implement a recession strategy could be your undoing, so get ahead of the game and prepare for a period of great financial difficulty. Here are some key strategies that will help your business face economic uncertainty:
- Focus your efforts on existing customers — as we have discussed, consumers aren’t spending as much due to lack of trust and growing apprehension. Because of this, it is essential that you focus on your existing customer base during testing financial times. This will increase brand loyalty and grow customer confidence. Offer them benefits and reasons to stay true to your brand.
- Implement adjacency and extension strategies — a recession is not the time to start looking into completely new avenues of profit. However, you can’t let your services become stagnant. Adjacency strategy is the optimum solution to this — find an area adjacent to your core product or services to expand into. Extension strategy is similar: take your current service a little further and offer new and exciting opportunities or products to existing customers. Ensure that you have a flexed forecast so that the business is fully prepared for all possible outcomes of this new strategy.
- Forge powerful alliances with others — mergers, acquisitions, and alliances are all key strategies during a recession. Alliances offer a great way to expand your business without investing in anything completely new during times of uncertainty.
- Don’t be afraid to outsource — outsourcing key elements of your business can save you time, money, and financial anxiety during a recession. Outsourcing your accounts department may allow you create scale and flexibility within your organisation.
- Reduce your inventory costs — look to see if your business has the leeway to reduce costs without sacrificing the quality of the services or products it provides. This will help to take the pressure off your finances.
- Don’t cut your marketing budget — often, brands make cuts to their marketing budgets in response to financial anxiety. However, this will spell disaster for your company. There is no time more crucial to maintain your marketing efforts and show customers that your brand is tackling the recession and winning.
- Tighten up on your corporate governance — companies that see a downturn in performance are more likely to survive if they have good corporate governance embedded into their culture. Part of this is ensuring that the company has had a financial audit. If in doubt, contact an accountancy from that specialises in audits, tax advice, and small business VAT.
Although nobody can predict the upcoming months, we can certainly protect ourselves. Those who start earlier and recession-proof your business will be more likely to sustain.
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