The end of the beginning?

Mar 31 2009 by Nic Paton Print This Article

Perhaps it's because the first signs of spring are here after a long, gloomy winter. Perhaps it's because, after the psychic shock of the autumn, people are more used now to the new economic reality. Or perhaps, without getting too Churchillian about it, we really are finally approaching the end of the beginning of this recession.

Whatever the reasons, there appear to be at least glimmers of optimism among business leaders, bankers, the public and politicians ahead of this week's crunch G20 summit in London.

A survey of more than 300 chief executives by management consultancy Arthur D Little has found that more than eight out of 10 expect their businesses fully to recover in the next two years, with nearly half expecting the recovery to come by the end of this year.

Its conclusions echo a poll, albeit a more cautiously optimistic one, by The Banker magazine.

Its survey of chief executives found nearly three out of 10 expected business to be better this year than last year, with more than a quarter forecasting their banks would recover or even improve in the second quarter of this year.

Similarly, polls among the general public by research body Gallup have been seeing a steady improvement over the past fortnight in the numbers of people starting to feel better about the economy.

According to USA Today, in the latest poll nearly three out of 10 were optimistic about the economy, the highest it had been since July 2007.

The percentage forecasting better times ahead had nearly doubled since March 9, from 15 per cent to 78 per cent, it added.

The surveys come barely a fortnight after relatively upbeat comments by Federal Reserve chairman Ben Bernanke, in which he suggested that, while the U.S recession would in all likelihood last most of this year, it would also probably end this year.

But don't crack open the bubbly just yet because there are an equal number of observers and pundits who remain distinctly gloomy about the economic picture.

The World Bank has this week forecast that the world economy will contract by 1.7 per cent this year, the first decline since World War II, with the world's richest countries contracting by three per cent.

And, while there could be a weak recovery next year, continuing uncertainty and tension in the financial markets could put this at risk and plunge the world into "stagnation", it predicted.

Similarly, the International Monetary Fund has forecast a decline in world output for this year of between 0.5 per cent to one per cent, while the Organization for Economic Cooperation and Development has warned that any U.S recovery next year is likely only to be "tepid".

It has forecast that U.S real gross domestic product will fall four per cent this year and then flatten out in 2010.

At the same time, a poll by recruitment firm CareerBuilder has found that six out of 10 older workers, aged over 60, are now putting off their retirement because of the ongoing financial and economic crisis.

The survey of more than 8,000 U.S workers reported that a tenth now feared never being able to afford to retire while nearly three quarters were more optimistic, arguing that they could probably recoup what they had lost within six years and a quarter suggesting it might take them just a year to two years.

And a poll of chief financial officers for Baruch College's Zicklin School of Business in New York has found confidence pretty much near rock bottom, with many CFOs still very much riding the economic storm and clinging on as best they can.

There was scepticism over President Obama's stimulus package, with nearly six out of 10 feeling less confident about the economy since his inauguration.

Half were still in the throes of making tough decisions, including freezing salaries, cutting hours and laying off workers.

The CFOs polled were also gloomy about the prospects for an economic recovery this year, with the overwhelming majority Ė 83 per cent Ė predicting the recovery would not begin until the first half of 2010 or later.

Nearly half felt the recovery would come before the second half of 2010, while a quarter pessimistically forecast the second half of next year as the more likely bet.

The Arthur D Little research, meanwhile, predicted a return to "pre-recession" conditions by 2011 and, more optimistically, felt the downturn would have a "purging" or "cleansing" effect on the economy, meaning that, when the upturn came, organisations that had survived might well emerge stronger.

Michael Traem, global chief executive of Arthur D. Little, said: "With companies across the board forecasting their sales figures to drop by as much as 50 per cent, expecting a return to pre-downturn trading in less than two years is very positive.

"However, as the CXOs we surveyed are well aware, the rebuilding process will not be easy, and will require strategic and innovative responses that cut costs in the short term while creating new business models and smarter ways of working in the longer term," he added.

Key strategies for recovery included, unsurprisingly, rationalising operations and cutting overheads but also keeping talent on board, improving risk management strategies and maintaining R&D and innovation capacity.

And, intriguingly, four out of 10 of the CEOs polled said they were continuing to give high priority to activities that prepared their business to make the transition into the low-carbon economy.

"Despite current pressure to cut costs in order to generate short-term cash flow, the majority of CXOs we surveyed remain dedicated to longer-term issues like R&D and workforce retention," said Traem.

"It is our opinion that in order for CXOs to survive today's challenging environment; they must re-double their innovation efforts in order to compete in an increasingly technology-intensive global economy.

"As the survey results show, there will be opportunities that emerge from this downturn, but they will only exist for companies that have taken an aggressive approach to investing in innovative technologies and processes," he added.

This "greening" of the economy as part of the recovery needed to be a part of the discussions at this week's G20 summit, the UK's Chartered Institute of Personnel and Development has also said.

Although the agenda for the world's leaders is already hugely ambitious, with many commentators arguing it is even overly ambitious, the CIPD has called on the summit to address not only global job creation but also the creation of a "new world order of work" where work is "smarter", greener, more flexible and inclusive.

Dr John Philpott, public policy director at the CIPD, said: "The immediate policy requirement is to restore confidence to the global financial system in order to increase the flow of credit to businesses and households.

"Alongside this, each G20 government should push monetary and fiscal policy levers to the fullest throttle consistent with medium term resource capacity and fiscal constraints, though some will need to act more cautiously than others to reduce the risk of inflation or large fiscal deficits limiting their medium term growth.

"In addition, governments should act to build open and flexible labour markets to maximise the use of available human resources and talent," he added.