Companies are focused on cost reduction in case of a recession-but they should be preparing for the recovery that will likely happen

admin
5 Min Read

Since the onset of the pandemic, the specter of a deep and prolonged recession has weighed heavily on business leaders. Organizations have navigated external challenges: sustained inflation, rising interest rates, a historically tight job market, and fundamental changes to workplace arrangements. For many, the question seemed to be not about if but when a recession would hit.

However, over the last several months, encouraging signs have appeared. The economy grew 2.4% in the second quarter, and while the Consumer Price Index rose slightly in September to 3.7%, core inflation (which excludes volatile food and energy prices) only increased ever so slightly, indicating that inflationary pressures appear to be steadily easing. The job market also seems to be remaining strong, with unemployment steady at 3.8%. Though borrowing costs are still rising due to the Federal Reserve’s rate increases, they are historically competitive. In short, the hope of a soft landing may be possible, if not likely.

It may be time to put aside that trepidatious outlook and prepare for a sustained economic recovery. In Q3, Deloitte’s quarterly survey noted a more positive outlook among CFOs for the economy as well as for their own companies’ financial prospects and growth. The survey found that 57% of North American respondents believe the current economic conditions are good or very good, up from 34% in the second quarter of the same year.

CFOs who participated in the survey also expressed cautious interest in the use of generative artificial intelligence (AI), while noting concerns over its potential risks, as well as investment requirements for its implementation.

Although CFOs showcased an optimistic tone and positive year-over-year growth expectations, geopolitics has been their most often cited external risk for several consecutive quarters. As a result, the primary focus of companies is now cost reduction. Given the recent economic volatility, this is understandable, but reactionary strategies may not position companies for success in a recovery. To help usher in a soft landing, businesses should shift from bracing for the recession that might happen to preparing for the recovery that will likely happen.

The reasoning is simple: Bull markets last longer than recessions. On average, bull markets last 2.7 years, compared to just 10 months for bear markets. Companies that succeed during a recovery tend to enjoy many advantages. Access to capital increases as they become more attractive to investors and valuations are likely to grow. Companies can gain the reputation of being well-managed and profitable, making them more attractive to customers, partners, and employees. These are the companies that can define the decades after an economic disruption.

To stand out in a period of economic recovery, executives should consider their organizations’ long-term goals and act on them. What investments are required? What are the necessary divestments to become more agile? How can technology improve efficiency? What forecasting tools should be integrated to better understand how the business is operating?

The U.S. economy has reached an inflection point. To help usher in a soft landing, businesses should prepare for a sustained economic recovery. Strategic decisions over the next year may very well determine winners and losers for the next 10. By proactively considering long-term goals and leveraging technology and human capital, businesses can position themselves as leaders in the post-recession landscape, contributing to sustained growth and success in the future.

Steve Gallucci is Deloitte’s global and U.S. CFO program leader. Ira Kalish is Deloitte’s chief global economist. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.

Share This Article
By admin
test bio
Leave a comment