How are you feeling about the current economic climate? It’s currently an incredibly uncertain time for business. Covid is still causing issues despite restrictions having been lifted (at the time of writing at least). Inflation seems to have an upward trajectory; Russia is at war with Ukraine. Energy prices have rocketed – and we need to save the planet too. No one would blame you for feeling a little overwhelmed.
What’s the big deal with inflation?
Inflation is one of those economic forces that can become self-perpetuating if not tackled. The effect on business is far reaching as it causes margins to shrink and upward pressure on wages. Businesses will naturally want to retain staff, increasing wages to do so and, to sustain margins, the price of goods and services will be driven upwards. It sounds terribly bad, but an element of inflation can be good, especially for those carrying debt as it means that the value of the debt decreases over time. At the same time though, if the value of money decreases too quickly, it will destabilise an economy and so central banks must look to control the speed of inflation. This can be done by raising interest rates.
Why is it a balancing act?
For businesses to grow and thus economies to grow, investment is required, and borrowing is required to fund said investment. If interest rates rise, the cost of borrowing increases and a business’s margins come under pressure again. Ultimately there must be a trade-off between the post pandemic recovery and controlling inflation.
What issues is Covid still causing?
For many businesses it is staffing issues. Staff may be unwell and away from work, their family members may need looking after or they may have left the industry all together. The scarcity of resource in the labour market is being felt across different industries and it will impact productivity, adding to the strain on the post-pandemic recovery.
What happens when we add a war into the mix?
Investors start to become more risk averse. This is because it becomes more difficult to insure or hedge risk. This causes market volatility and will make investment more difficult. That said, markets will stabilise as time moves on, the war plays out and a new equilibrium is found.
What do the sanctions imposed on Russia mean?
Global trade will be impacted. The movement of goods around the globe become restricted and commodity prices become volatile. This volatility creates additional risk for business. It will stabilise over time where production is not restricted to a sanctioned or war-torn country, however the uncertainty will cause stress for businesses.
How can we save the planet as well?
Make it a priority. Following the path to net zero must be on every business agenda and the time has come where those businesses that do not follow this path will be left behind. Some will argue that with energy concerns afoot, a trade off with the climate crisis is necessary. I disagree. The journey has started and for businesses to survive, they need to follow this path.
What can business owners do?
You’ve all heard the saying “keep calm and carry on”. It’s good advice. Having time to take those calming breaths is important and when the panic sets in, it feels as though you don’t have time. You do. Go back to basics. Look at your business model, look at your business plan, review your strategy. Whilst there are plenty of threats out there, and you will have weaknesses, if you know about them you can deal with them and allow yourself the time to harness your strengths and look for the opportunities.
Being in business can be very lonely and when there is a lot going on and business starts to become difficult, it can be increasingly so. Speaking to others, seeking advice, discussing matters with your peers, and looking to your network are all valuable coping strategies.
Be careful about burying your head in the sand, especially to avoid world events. I am a big believer in limiting exposure to social media and the news because of the negative impact it can have on mental health. However, blocking it out entirely may disadvantage you in business because you will not be able to see the issues unfolding and have the time to be able to adapt quickly.
Although there is a lot going on globally, periods of change open doors and create opportunities so look out for them and grab them.