Managers should focus on spotting shifts in economic indicators
The Covid pandemic may be on its way out but it has left behind raging inflation to continue tormenting us. Unprecedented price rise is being witnessed across the globe. The USA, the world’s economic powerhouse, is trying to grapple with the highest inflation in four decades. The same sorry saga is being played out in other countries. The underprivileged and marginalised sections of society are the worst hit. Known to spend over 60% of their meagre incomes on food, shelter and clothing, the poor are finding it difficult to meet even these basic needs. Rising prices have crushed their spirit.
Industries and businesses too are faring no better. Supply lines have been choked. The current inflation is more of a supply than demand phenomenon. Whatever is being produced is finding fewer consumers. Growth plans have been shelved as the cost of capital has risen thanks to increasing interest rates.
Central banks over the world and, in our case, the Nepal Rastra Bank have raised repo rates to curb inflation. This has been the standard antidote of central banks against shooting prices. The US Federal Reserve, which most central banks look up to, was among the first to hike rates. Whether this old age recipe works or not and that too fast enough remains a moot point.
Most countries, including the advanced economies, emerging ones and those lagging far behind, have followed the US example. Alas, expected results continue to elude us. Instead, we are witnessing big businesses postponing their expansion plans as increased interest rates have made debt costlier. The middle class is groaning under the weight of heavy EMIs. No wonder then that predictions about the likelihood of prolonged recession from early 2023 seem credible.
Dr Nouriel Roubini, professor of economics at New York University, has warned that the coming 10 years could bring “massive insolvencies and cascading financial crises”. One must pay heed to the don of doom as he was the one to predict the 2008 subprime housing crash in the US which led to deep global recession.
It is in this context that I emphasise the need for managers, young and old alike, to sharpen their understanding of economic trends. On a day-to-day basis, management remains a tactical game aimed at attaining strategic goals. Leading teams and chasing sales targets and revenue realisation, managers tend to forget that any business or enterprise, however big, is only a part of a much bigger entity, the economy. With the planet having transformed into a global village, no country can escape the ups and downs in the world economy. There are multiple factors behind most upheavals with most of them being beyond our control. The actual Russia-Ukraine conflict is happening thousands of miles away yet its repercussions are being felt in Nepal as well.
It’s time for our managers to be alert about geo-political and geo-economic changes and to calibrate our business tactics and strategies accordingly. There is no point in screaming and crying when the sky has already fallen on you. So, keep your eyes wide open to spot economic trends well in time.
Besides global funding institutions like the World Bank, IMF, Asian Development Bank, central banks of different countries, major commercial banks and the like, most business conglomerates and MNCs have their own teams of economic analysts.
Business and investment decisions, both routine and path-breaking, are taken on the basis of a host of macro-economic indicators like positive and negative changes in GDPs, employment figures, industrial production, manufacturing demand, consumer spending/consumer confidence, inflation, real estate sales with special focus on purchase and construction of houses, infrastructure development, retail sales, etc. Emergence of disruptive technologies and business approaches like the ones seen in the IT and telecom sectors too remain under the scanner all the time. Changes in countries’ tax structures swing business decisions either way.
Demographic changes impact long-term corporate moves. A country with a fast-ageing population will attract fewer foreign investors compared to another with large and skilled working-age human resources. History of high productivity and good work culture is definitely a plus point. While political stability, ease of doing business, rule of law, and good human rights situation encourage inflow of funds as is the case of high FDI in the USA, Netherlands, Singapore, Luxembourg, Switzerland, Ireland, Germany, etc., war and strife stifle business all around as we are witnessing in the wake of the current Russia-Ukraine hostilities. Other market indices that need to be closely watched include stock and futures markets, foreign exchange rates, bond and mortgage rates, commodity prices mainly hydrocarbons and even grains in importing countries.
Success comes to businesses and managers who are quick to spot the changes and trends early and mould their tactics and strategies accordingly. The early bird catches the worm.