What’s The Prospects For Recovery After The Recession?
As 2010 begins, it is hoped that the financial gloom of the preceding years will start to recede; and there are signs. However, with so many questions still to be answered, decisions to be made and significant considerations to affect a successful recovery from recession; how robust that will be is unclear and unpredictable.
Underpinning everything will be how the banking and financial sectors perform and strengthen. Though there has been substantial capital growth over recent months; the necessity for credit will test this. It is fair to say they are on a sounder footing after huge investments from government, but only responsible lending will support a sustainable upturn.
Though increasing credit streams to the consumer is vital, such is the importance of demand in the economy to any recovery, understanding how indebted householders will behave will be key. Focus has been on saving, reducing debt, and securing or keeping employment. As the number of jobs available increases, so will confidence. However, if current saving trends continue, the work put in by the banks could be undermined.
A positive step throughout the entire recession has been for businesses to have a long hard look at how they operate. Lessons have been learned, and steps are being taken. Though high profile collapses highlight the last three years, many more companies have strengthened. Backing from the banks is returning, though necessity has forced them to rely on reduced credit.
The lessons learnt here have not only allowed businesses to retain higher numbers of staff than expected, but also ensured they are well placed to exploit recovery. However, there are signs of concern as businesses may fail to source stocks as demand increases; causing a loss of trade, further downturn and unexpected job losses.
As important as all the issues are; the one thing tying everything together will be the management of public finances. It is accepted that spending will need to be cut in key areas; it is also known that tax will have to rise in many areas. That these bitter pills have to be swallowed will only be sugared by responsible management without reducing spending at consumer level. With saving still popular of course, this will not be easy.
It is fair to say that state support across the world’s major financial markets helped banks survive; allowing for a foundation to build recovery on. However, with banks now performing strongly, and bankers making huge personal fortunes again, discontent in the public mind is rising. But support cannot be withdrawn too quickly, as collapses could still happen. The consumer needs to understand this.
Anything that promotes too quick a recovery is likely to lead to a ‘double-dip’ recession, and its effects will be long lasting. It is important not to get carried away by the small recovery we are now witnessing. It is all too easy for collapse to occur for many reasons; the recent poor weather indicative as this as spending halted overnight.
All of these questions need to be yet answered before a full recovery can be seen. Main Street and Wall Street need to work together, rely on each other and understand each other. It is such a lack of understanding that lead to recession in the first place; so a strengthening together steadily is what is now required.
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