A ‘double-dip’ recession seems inevitable given the plunge in consumer confidence across both Europe and the United States.
Unfortunately, keeping interest rates low has not encouraged savers to spend money. The lack of consumer spending here in the UK is made more daunting because of the weakness of the Eurozone, which makes an export-led recovery more of an aspiration than a reality.
Globally, the International Monetary Fund (IMF) has called for further easing of monetary policy, which in plain English means that more money is to be pumped in to stimulate economies. Some commentators suggest that if this does not happen soon, given the state of France, Italy, Spain, Portugal and Greece, we will face recession again.
Here in the UK, the government is committed to continuing its programme of cuts to reduce the deficit and the opposition Labour Party maintain that a slower cuts programme, with more public spending would be better economic medicine.
When the recession first struck, it was seen by some as a way of cleansing an economy which had gone out of kilter and become unbalanced. Businesses which were underperforming and causing harm were removed from the system, creating opportunity for stronger, more efficient businesses to take their place.
Unfortunately, due to a combination of government intervention, banking policy and HMRC ‘Pay as you Go’ schemes, those businesses in breach of banking covenants and schemes are operating like zombies.
So what is the solution? There is two theories which would both have consequences.The first is to liquidate underperforming businesses now, and this includes underperforming banks. If this happens strong businesses should fill the void and cause regeneration. The downside to this approach is the pain of unemployment and the social problems that occur because of this.
The second explanation is to implement Keynesian economics, the economic theory proposed by John Maynard Keynes, which says it is better to pay a man to dig a hole and pay another to fill it in rather than having somebody doing nothing, as this will stimulate the economy. But this would result in a greater national debt burden.
As a Restructuring and Insolvency Practitioner, I want to see a growing sustainable economy with an availability of credit to both good businesses and ailing businesses which, with help, can become healthy again.
At present, I see a real danger of a double-dip recession but no clear strategy of how to stimulate lasting growth which business and society desperately depends on.
Sam Talby is a Partner and Licensed Insolvency Practitioner at Bishop Fleming Business Recovery and Insolvency. Sam has over eighteen years of mainstream insolvency and business turnaround experience gained from both small and large accountancy firms and has dealt with a variety of cases ranging in both complexity and size. Sam is also a Chartered Certified Accountant and a Member of the Association of Business Recovery Professionals.
Tel: 0117 9100 250