"It's the economy, stupid"

The global economy is in a precarious state.

At the end of January 2022, the International Monetary Fund (IMF) released their periodic World Economic Outlook report , noting that the global economy was in a weaker position than had previously been anticipated. Elevated inflation and the ongoing effects of the pandemic have delayed economic recovery, and extended the risk to those most affected by straitened times.

Economists around the world are recommending action from global governments on health and social spending , in order to ensure that business confidence is sustained in the face of potentially prolonged inflation.?

The doom and gloom is palpable in all assessments of the global economy.?

What then, can be done by companies to prepare for what could be a long, dark period of economic uncertainty? What actions can people and organisations around the world take to build resilience against potential austerity? I believe there are options. But how those options manifest will be dependent on what happens in several global elections.?

First, some context.?

The title of this post comes from Bill Clinton’s 1992 campaign strategist, James Carville , who famously developed the line as one of three talking points for workers in the Clinton election camp. A recession had taken hold of the US, due at least in part, to the savings and loans crisis of the 1980s, as well as restrictive banking policies around the world. The quote was designed to motivate voters who were affected by the recession and by high inflation at the time. While the economic position of the US was probably more influenced by global than local factors, the message provided a fairly simple rationale for voter support of Clinton - the economy, stupid.

The United States

This year, the US faces midterm elections in what could be another period of recession . And because midterms are actually fairly easy to predict , it’s likely that Joe Biden’s Democrats will lose their majority, giving the Republican Party (GOP) control of both the Congress and the Senate.?

What this will mean is that Republicans will set the agenda for government spending over the next two years. But while tax cuts may feature among their projected actions, it does not necessarily follow that Republican control of both houses will result in reduced expenditure in healthcare or social services. Indeed GOP campaign literature is fulsome in its support of both avenues of spending, and their focus on business protection and development could help limit the duration of any forthcoming recession.?

Implications for companies - US elections

Whether you are based in the US, you have customers there, or even if you are dependent on the US dollar for purchase of goods, the result of the midterms will mean that individuals and organisations can find ways to tap into the emerging legislative agenda for their own benefit.?

Of particular interest will be initiatives that focus on predictive insights. Companies that invest in technologies or processes that improve the efficiency of health services, or that help to drive improved social outcomes, are likely to find support from the US Government.?

Covid-based restrictions on office access are being steadily dismantled in the US, but the lingering issue of the Great Resignation has nudged companies into supporting different ways of working. Companies that can provide evidence of effective productivity in a flexible workplace will emerge as market leaders.?

So resilience in the US is likely to come from business intelligence, and a record of effective flexible workplace practices.??

The United Kingdom

With the Fixed-Term Parliaments Act of 2011, the UK essentially removed uncertainty around scheduling of elections. As such, the next UK general election is not due until May 2024. And the Conservative Party have an 80 seat majority in the House of Commons. So it may not seem that elections would likely have much of an effect on the UK economy.?

But the government has drafted a repeal of the Fixed-Term Parliaments Act, and rumours have been circulating that elected officials have been told to prepare for an election in 2023 .?

Further, increasing dissatisfaction with Prime Minister Boris Johnson within his own party over recent weeks and months has increased the likelihood of the passing of a vote of no confidence, or a supermajority vote to dissolve Parliament.

This means that the UK could find itself facing an election this year. And with public opinion polls indicating Labour in the lead , it is entirely plausible that the UK could see a change of national government.?

Implications for companies - speculative UK elections

In 2020 the UK economy experienced its greatest contraction since 1709, with GDP down 9.9% and the deepest recession in history during the first half of the year. While the economy did pick up during 2021, constant changes to Covid-19 restrictions and pressure on the healthcare system has meant that recovery has been choppy at best.?

While a change of government in a speculative UK election is unlikely to turn the economy around overnight, there will still be opportunities for individuals and businesses to take advantage of possible changes in expenditure and prioritisation.??

The UK’s Labour party have identified that they would prioritise employment (with unemployment now sitting at 4.1%). And with ongoing impacts of Brexit on the UK economy, local employment and projects that help support the fastest growing sectors are likely to be most palatable under a Labour Government. Innovation and projects that are aimed at supermarkets, construction, hospitals and the financial services sector could be popular -? mostly because they have the highest revenue performance .?

All this means that resilience in the UK is likely to come from job creation and economic development projects.?

Australia

In Australia, there will be a federal election by no later than 21 May 2022. Of all the regions cited in this post, the impact of the Australian election is possibly the hardest to predict. While it will certainly happen (unlike the UK election, which is only a possibility) there is no clear indication which party will emerge victorious.?

In spite of this, what is perhaps more clear, is the impact of the election on the economy.? Due in part to the certainty of election timing, budgets in government as well as in industry are currently in a kind of limbo, while investors bide their time to see who will actually be in government.?

This means that there is possibly more potential for investment in Australia than anywhere else right now.?

Implications for companies - post-Australian elections

Given increased confidence about investment in renewable energies , it is probably safe to say that energy and climate ventures are venues of opportunity for all businesses. From the energy perspective this could mean development of new energy capture and management products, new ways of tracking energy use, new systems for improving supply effectiveness, or even just new mechanisms for negotiating energy supply contracts. From a climate change perspective this could focus on water use, food security, biodiversity and other initiatives designed to facilitate improved outcomes. And of course, it will involve all the business ecosystem associated with supporting these new products and services.?

Healthcare and pharmaceuticals are also going to continue to be the focus of investment in Australia, with the long shadow of Covid-19 colouring the national perceptions of “essential services”. So businesses that develop initiatives and products designed to add efficiencies? to these sectors, or even to work with them on collaborative projects, will be well positioned.?

Finally, Australia’s love affair with residential real estate is not likely to end any time soon , even if price increases begin to slow. Perhaps however, the issue of affordable housing may receive increased attention, particularly if there is a change of government. Opportunities for development of affordable housing solutions could also be well placed.?

Therefore, Australian resilience is likely to come from projects focused on energy and climate, as well as the development of healthcare, professional services and housing.?

Asia and beyond

China’s 20th National Party Congress will meet in November 2022 for their elections. Back in 2018, the Chinese parliament removed the 10 year limit on tenure for a Chinese president, effectively setting up the possibility that President Xi Jinping could be president for life. The elections in November will provide more clarity around that lifelong presidency.?

Implications for companies following the Chinese elections

From an economic standpoint, the confirmation of Xi Jinping’s lifelong tenure would only add stability to what is already an economic superpower. Already the world’s largest manufacturer and exporter of goods, and the fastest growing consumer market, China may well overtake the US as the world’s largest economy around 2030 .

For China’s neighbours, this means that countries need to find ways to work with one another, and with China, for mutual benefit and growth.??

Beyond Asia too, cooperation between national economies is required to combat both existential threats as well as locally influenced economic imbalances. The Asian Century is, after all, still less than 25 years old.?

Resilience across Asia and beyond will come from partnerships with neighbouring countries and negotiation with the emerging superpower of China.?

The outlook ahead

The state of the economy - globally and locally - will always impact business investment. Identifying how and where to invest is of particular relevance in a period of economic gloom.? While the indicators may not be encouraging right now, with the right research and planning, there’s still a reason to feel that you can rise above the challenges that lie ahead.?

Then it will be you, declaring to your competitors, the reason for your growth in the face of such adversity: “it’s the economy, stupid”.?