Home > Uncategorized > Bust after the reccession?

Bust after the reccession?

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It has long been an observation that more businesses experience financial difficulties immediately after a recession rather than before or during. Its a conundrum that is not always easy to grasp

This article in the usually excellent Real Business attempts to explain but for once I found many of the points raised a little muddled. References to Germany’s investment do not look prescient at the present time and the issue of stock was a little contradictory

So why do businesses struggle after a recession?

Some truths were indicated in the article and the most obvious is the simple matter of over trading. I believe this is less a matter of pure numbers as much as sentiment in so far that having come out of a long downturn, business optimism can simply get carried away. The actual truth is that the economy is rarely as bad or as good as many can assume. I have certainly seen this almost bi polar mentality grip enterprises

But more pertinent too is the simple fact that borrowing costs will rise. The cost will hit home before the generated income and its that very gap which can be crucial. But will this be an issue this time around?

Lastly there is of course the very issue of who will take the decision. Banks have been under public pressure over the past few years and have been reluctant to be seen to be trigger happy. HMRC has given a little more welcome leeway too.

Now that we are on a upward swing do we expect to see these factors kick in? I have some doubts.

Firstly I believe that the sluggish period (it hasnt technically been a recession for some time) has been so protracted that psychologically most businesses are not prepared to overreact. Its a guess of course but many published indicators do show a general cautious optimism rather than a manic high

Borrowing costs will eventually increase but from what to what? In past recoveries the borrowing has increased by a number of points. This time it simply will not and not so many businesses will feel the shock

As for the banks and HMRC, I cannot answer. I sense that maybe with less of a focus on their activities then there may well be a few more appointments but friends in the IP sector are less sure

We shall see

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