This is a bit of a departure from my usual theme of writing, but I am sure I will touch back on to marketing a little later in the post. This is a not a “how to avoid the double dip article”; this is not a “where we went wrong article”. This is a look at where the double dip will be felt the hardest (in South Africa) and where businesses can already take action before it hits them.
First off : What is a recession?
A recession refers to a country’s GDP (gross domestic product) being negative over a quarter or two following a quarter of positive growth. A Double dip recession is when there is a period of brief relief between quarters of negative numbers.
What are the signs of a Double Dip?
America and Europe are the early warning alarms for South Africa and there are already a great many signs screaming that the double dip is looking less and less like a theory and more like a very true reality in the next quarter.
Some of these signs are pretty self evident for the average man (like me) in the street to see :
- Inflation – with the cost of goods such as fuel and staples increasing on a monthly basis quickly erodes consumer confidence. The rising cost of goods means that the average consumer has access to less and less unless they are willing to dip into their available credit lines.
- Investments are yielding less return – the stock markets are what helped bolster the markets out of the initial stages of the depression; but when these self same investments stop yielding as much of a return then the market starts getting edgy again.
- Oil Prices – I have mentioned the increase in the price of fuel already, but this is directly linked to what a barrel of oil sells for. The cost of a barrel is technically supposed to drop as the economy slows down. This then enables business to continue to transact and afford fuel when times are tough. At the time of writing this article, the cost of a barrel of fuel was : US $108.75
- Unemployment – The South African unemployment rate was sitting at 25.7% at the end of the second quarter. The recession conjures up RETRENCHMENT in the minds of every working human being. As profits begin to fall and costs begin to rise, sadly this does become one of the last resorts of businesses to remain operational. On August 23rd, UBS (Switzerland’s largest bank) announced that they were cutting 3 500 jobs.
- Cost of housing – the cost of housing is considered to be a bit of a lag indicator by many financial professionals, so when the price that buyers are willing to pay drops way below what the sellers are asking for then this becomes a sign that there is economic trouble ahead. Banks and bond originators play a large role in this arena as they control how large a line of credit they are willing to give and thus determine how much willing home buyers can actually afford.
There are many other factors that can be hallmarks for a profit of doom screaming economic Armageddon, but these are the more obvious ones that can be easily understood by economic laymen like me.
How does the recession really affect your business and you?
Whether we are economist or not, everything that we do in our daily lives is intrinsically linked to the economy and ultimately our economy is linked tothe rest of the world – a butterfly effect if you will. Essentially this means that you and your business need to safe guard against being hit too hard and being caught off guard when the double dip eventually does hit.
This means that some things that need to be borne in mind are :
- unnecessary spending needs to be kept to a minimum
- unnecessary hiring needs to be avoided
- dipping in to lines of credit is a large mistake
- manage supply chains very carefully and ensure they are optimised
While this will not prevent the recession from affecting you and your business; it will certainly help you feel its effects less severely.
The above graph compares the South African GDP with that of Brazil, another developing nation. While the graph does not extend to present day, you can already see the dip in GDP Brazil took to start 2009.