Can You Survive In The New Economy?

A slowing world economy

There are heightened fears about a slowdown in the Chinese economy and the ripple effect it may have on the rest of the world.

Energy and other prices have fallen and yet consumers everywhere are anxious about what will happen next.

More recently growth has slowed or stopped as markets wobble and experts try to understand what is happening and why.

The financial crisis and recession were difficult to come to terms with but the behaviour of the economy during the recovery has baffled commentators even more.

The traditional expectation was that the recession (no matter how deep) would be followed by a quick recovery as growth in employment and economic activity returned to normal.

This has not, however, been the case as the reality of the recovery has strayed from traditional expectations and the patterns of previous downturns.

Few people expected interest rates to fall so far so fast or stay so low for so long with so little effect while also experiencing low or no inflation.

Even more surprising is that low interest rates and low inflation are expected to persist as governments and central banks figure out what to do.

The most surprising and extraordinary element, however, is that all this is happening at a time when the recovery is almost seven years old.

More saving, less investment

Given the scale of the financial crisis and depth of the recession there is an understandable tendency for people and businesses to save rather than invest.

As a result demand in the economy falls, which limits growth and lessens inflation as higher savings and lower investment lead to falling interest rates.

High savings levels are also influenced by a rise in inequality, the need to finance extended periods of retirement, concerns about income stability and anxiety about the affordability of housing.

Lower business investment is driven by a desire to borrow less and accrue cash coupled with an increase in lending criteria and a contraction in lending.

In a parallel development companies are leveraging technology to reduce costs and reinvent business models and practices to pivot and survive.

The wider effect of technology is transforming whole industries, reducing employment and triggering concerns about long-term economic growth.

Technology too is, ironically, causing businesses to delay investing in technology, as it increases uncertainty and a fear of buying what may soon be redundant.

SO, we survived the financial crash and one of the worst recessions in decades but the question now is whether or not we can survive the recovery.