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It’s been a little over three years since I joined Interim Partners and looking back over previous blogs it’s plain to see that not a lot has changed in terms of the macro-economic landscape. We’re still talking about recession albeit with the emphasis on double dip, on tough markets and the need to become ever more competitive, but what will prove to be the catalyst for the change that will bring about an upturn?
With growth stalling even in the BRIC economies, it’s difficult to see what will provide the impetus for growth. Could it be that we have to wait for the Euro crisis to be resolved before companies will pick up investment? It would seem that the political will is lacking with Europe’s leaders adopting a wait and see attitude rather than tackling the problem head on, as this would lead to the inevitable admission that the currency was flawed from the start and cannot continue to function in its current guise. It will also lead to a painful, if short lived, adjustment – something that is rarely a vote winner.
It’s difficult to see what else could provide the stimulus and I suspect that we will be forced to live with the current uncertainty until markets intervene and make the decision for the politicians. This looks increasingly likely to be sooner rather than later given the pressure from private investors in Greek debt!
We live in interesting times as they say…
Tom Legard is Head of Manufacturing at Interim Partners.
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January 20th, 2012 at 1:35 pm
Tom
Empathising with your analysis I fear that the catalyst may well be social unrest, particularly in the Club Med of Euroland. Austerity can be borne if their is a sense of social justice across a society as well as hope and expectation that pain will have a time limit. Regretably there seems an increasing disconnect between electorates and the political class and distrust of what is motivating the decisions. I think we are all aware of the ‘can kicking’ which has been elevated to a fine art status.
Corporates split three ways. FTSE quoted are generally in rude health ( unless they are in non food retail or housebuilding), sitting on large free cash reserves, waiting for planning horizons to clear and realistically priced acquisition opportunities. SMEs with little or no gearing are unwilling to expose themselves to increased debt to grow their business, unless that can be self financed from current profits. Finaly and anecdotally there are some 100,000 – 200,000 SMEs in ‘zombie’ territory (see Begbies Traynor quarterly red flag analysis) – effectively owned by banks and supported whilst they service their debt and banks can thus avoid rafts of balance sheet write downs. Whilst there are some notable exceptions, this, I believe is the state of the majority. Clearly its unhealthy and confidence sapping.
I’m inclined to apply the understood rules of business distress to the present situation eg the longer a fundemental acknowledgement of the need to restructure operationally and financially is avoided ( in denial period) the more severe the eventual medicine and the greater the potential value destruction due to the actions required.
Economists & commentators have parroted Keynesian or Hyeck matras, refusing it would seem to recognise the fundemental differences between the economic environment in the middle of the last century and now.
We have allowed politicians across the developed world to buy votes with promises backed up with increasing Government Debt rather than sustainable GDP and tax income growth. In a similar vein our banks have created private debt bubbles based on instruments of fraudulent value.In one sense therefore we are all to blame for the self interest and lack of integrity displayed by those in power.This is the foundation of the ‘moral capitalism’ debate that has recently surfaced. Will it be more than words and superficial action – who knows, however it certainly needs extending to include the ’snake oil’ promises of the politicians.
Should we by some miracle find political and moral leadership from within the developed world ( in recent times that has been from the USA, however Obama may be a great orator yet lack the intestinal fortitude) then the fundemental questions needs addressing. Do we go for the Japanese lost decade approach and hand the debt burden onto our children and beyond possibly, or do we accept that a period of corrective pain must be endured to recover world competitiveness and hence economic growth. The implications of either are profound.