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Saturday, August 29, 2009

Is the recession over? (Part 2)

My last post asked the question - is the recession over?

Yesterday, my good friend and long time business associate Keith Steven of KSA Company Rescue (Keith is a leading authority on company rescue mechanisms, especially the Company Voluntary Arrangement "CVA") posted the following in his blog which I could not agree more with:

Double dip recession is certainty, not just for UK

"The shocking business investment numbers released yesterday give the lie to the green shoots myth for business.

Investment by businesses contracted on a quarter-on-quarter basis by its largest amount since 1985 and its looks like the annual decline this year is likely to be about 18 per cent — the biggest fall, outside wartime, for more than a century.

With that backdrop I cannot see a big recovery or even a small recovery in the economy. We have been saying for some time that companies, to survive the recession, have been cutting costs, reducing employment and now its clear they have also cut investment.

With 180,000 companies not paying PAYE and VAT on time (to survive cash flow crises) it is clear that SME businesses are having to "hunker down" for worse times ahead, by cutting investment, costs and employment.

Alongside consumer tax rises, next year we will see the new Government cut costs, public sector employment and investment too. Smart boards are already planning for that and cutting their cloth to fit. Coupled with falling investment as employment falls, less money will be spent by the consumer, so service sector and retailers in particular will see growth grind to a halt again after a recent rise.

So will this lead to the double dip recession or W shaped recession. Nothing is ever certain but that is what I am thinking as each month goes by.

So what of other countries? The rise in GDP in Japan is interesting. Much of this is probably restocking by companies, remember Japanese manufacturing collapsed last year. So good news for Japan ahead? NO.

This week the worlds largest car manufacturer, Toyota, decided to close a US plant and mothball two production lines (one in Britain), this is the first time in its history it has taken such actions. Does the board of Toyota see growth ahead?

Fujitsu announced 1,200 job losses in the UK . This after shorter working hours did not work in the UK. Falling revenues were to blame. No growth there then.

France and Germany also announced growth in Q2 of 2009. I also think this was driven by restocking and the bringing forward of car sales for example. Ambrose Evans-Pritchard of the Telegraph's recent article also points out that European credit contracted recently (ie did not grow).

We should not succumb to optimism that everything has been overcome. The whole world is in recession together and nobody alone can export their way out of the downturn. The recovery cannot last unless there is rise in global demand, and jobs are created, and there is no sign of that.

The rebound in Germany and France is not sustainable. The state has stepped in to compensate for the Private sector. As long as economic growth relies on the state, you cannot talk about durable recovery.

So lets wait and see, but it looks like a fall in GDP is ahead and it will be late 2010 before meaningful recovery in the major economies and then I think growth will be very sluggish."


I was listening to a commentator on the television this week who pointed out that there were no signs anywhere (in the world) that any "recovery" was sustainable. He also highlighted the lack of consumer demand and the restocking issue.

The reality is that any green shoots are probably just weeds, since small businesses are still suffering and judging by Keith's comments not investing either (how can they when credit is so tight!) and are therefore far from out of their problems.

There needs to be some substantial movement in the smaller business sector before we will see any positive and real change.

In the meanwhile if businesses are to at the very least survive, if not thrive, through this they need to wake up to the realities of the world we are now living in and adjust accordingly. Just battening down the hatches is not the answer. Businesses need to reassess their plans, look at the financial positions, and revise them to take account of the new reality and make something positive from it. Many great businesses were founded in recessionary times - make yours one of the ones to gain from the current climate!

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