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Taking the Pulse of a Changing Global Economy – A Business Strategy Guide!

Jun 17, 2020

How do you navigate the moods and interactions of a $90 trillion world economy? Few economic indicators can help you monitor economies, markets, and businesses to provide an insightful corporate outlook.

After COVID-19 outbreak in Wuhan, China, it was a domino effect thereon. Well spun globalized value chains laid out twin attacks on the lives and livelihoods worldwide – with virus threatening the former and lockdowns risking the latter.

Clearly, international institutions are no longer discounting that there is going to be an economic emergency, possibly tailed by a financial one. According to the World Bank baseline forecast, a 5.2 percent contraction is expected in the global GDP in 2020 – signaling the deepest recession in decades. International Monetary Fund (IMF) predicts a recession that’s likely to be the worst since 1930s. Among the downbeat economic outlooks, the Organization for Economic Cooperation and Development (OECD), a rich countries club has albeit warned of deep lasting economic scars, it says developed economies will likely experience a rapid bounce back.

Odds are, it will be a period of slow revivals, costly adjustments, and perhaps more than a few episodic setbacks for businesses in the next few years, but not a decade of disaster. A view shared by Robert Zoellick, Former World Bank President. Be it as it may, to survive this crisis, skillful adaptors and disrupters will watch out for the signals of confidence from consumers, societies, governments, and industries.

Economics for Strategy

Business recovery is predicated in part on the economic conditions and systems of a country. Even more so in the times of crisis when businesses look to political power to fill the void – stimulate the economy, keep interest rates low, and so on.

Stepping into the minds of governments and central bankers can help business strategists understand consumer disposition, hidden costs, and projections for their commerce. If a company is to expand, scale up or diversify, it needs to know the outlook of world trade. If international trade is undergoing a contraction, expansion plans will be disturbed. When import tariffs are raised by a country, businesses have to rethink if they can continue operations there. Economics is a way to understand and predict markets.

Corporate strategists need to pore over global economic data like tea leaves, spotting future signs of a recovery or slowdown, as it may be.

Fortunately, a lot of macroeconomic wisdom can be seized in a few simple economic indicators for founders, CEOs, executives, and strategists.

17 Economic Indicators to Watch Out For

Daily, weekly, monthly, and quarterly measures are released by copious agencies to indicate the health and direction of global economy. Which economic indicators must you track – and why?

For the indicators to have predictive value for CEOs and Business Strategists, forward-looking pointers must be chosen. These fundamentals can give a whale of good insights.

Indicator Measures
GDP growth

One of the most closely watched economic indicators, Gross Domestic Product (GDP) measures the market value of all final goods and services produced in a country and indicates its overall economic health.

GDP growth rate is low when slowdown occurs, and it typically goes in negative for two consecutive quarters or more when economy is heading in recession.

GDP per capita

It indicates average purchasing power of each individual. A good measure of a country’s standard of living.

Employment rate

It measures the total working-age population employed in a country. High employment rate indicates more demand and low values indicate conceivably the availability of cheap labor.

Exchange Rate Volatility

It measures the tendency of currencies to appreciate or depreciate in value. When businesses interact in overseas market – importing machinery or exporting goods – high exchange rate volatility can affect its competitive position.

Global Purchasing Managers Index (PMI)

Released by many including IHS Markit and JPMorgan Chase, it’s a glimpse of the present and future health of manufacturing and services sectors. A PMI above 50 signals growth.

Commodities

It’s a crucial indicator to improve a business’s competitive position. In general, high and volatile commodity market prices, especially gold, grains, oil, and metals, increase the cost of doing business.

Fiscal Deficit

It’s the difference between government’s expenditure and revenues. Next few years will witness larger deficits as governments spend more through stimulus packages and receive fewer revenues due to declining employment and business activity. Many businesses implicitly support high deficit if it means receiving public benefits and close to zero interest rates.

FDI Inflows

High Foreign Direct Investment (FDI) inflows represent a responsive environment in a country foreign to your origins for growing business or starting new operations while keeping your control intact.

Global Market Indices

S&P 500 is one of the leading economic indicators of the US market. It represents the health of large-cap US companies. Similar indices are also available for foreign markets and different sectors.

Ease of Doing Business

Released by the World Bank, Ease of Doing business ranking indicates the conduciveness of the regulatory environment in a country to starting and operating a business.

Logistics Performance Index

How efficiently you can move goods across and within a country’s borders is measured by the Logistics Performance Index released by the World Bank.

Exports and Imports to GDP

Export to GDP and Import to GDP are important indicators of the health of international trade in the times when global value chains have taken a substantial plunge.

Inflation

Measured by Consumer Price Index (CPI) and released by IMF, it is an important indicator of consumer prices in a country. It measures the change in the prices of goods. High inflation means the cost of raw material, labor and capital have risen in the country.

Global Risk Report

Annual report released by World Economic Forum (WEF), it analyses risks at the global level for doing businesses, highlighting vulnerable areas – from cyber-attacks to governance. It also outlines suggestions to mitigate them.

Global Competitiveness Index

In this publication, WEF merges macro and micro aspects of an economy into a single index. It measures a country’s comparative ability to use resources and provide prosperity to citizens. It takes into account healthcare, financial markets, government policies, and several other features.

World Economic Outlook (WEO)

Based on a survey by IMF, WEO assesses global economic activity and forecasts the prospects of investment, manufacturing and trade.

Credit Rating Agencies

Global credit rating agencies like Moody, Fitch, and Standard and Poor, intermittently give out predictions for certain sectors in different countries. Albeit their analyses can be contrasting and diverse from each other, they are insightful.

Evolving Business Models: 4-Point Plan

Basing business recovery on a return to normalcy is perhaps fallacious in short-term and catastrophic for the long-term.

Given the uncertainty around second wave of infections and COVID-19 vaccine, an alternative is to mount a response factoring in new modes of behaviors and models. To recover differently and better.

A 4-point plan can help business strategists build resilient and futuristic systems.

1. Decarbonize – Business without killing the planet

The rules of the past will tone down. As the calls for a greener economy become louder and consumer preferences shift toward impact-making businesses, management teams will have to trace economic recovery that is green, inclusive and clean. Wall Street is also in consonance with prominent institutions issuing position papers around climate change. In an annual letter to the CEOs, Laurence Fink, Founder and Chief Executive of BlackRock, the world’s largest asset manager wrote,

Environment sustainability is one of our core goals. Climate change is invariably the top issue that clients around the world raise with our staff. We aim to vote against teams not making fast enough progress on climate change.

2. Diversify – Business balancing local and global

The tenuous nature of interconnected global supply chains has become jarringly apparent. As the world weighs the future of interconnected value chains and China, the world’s factory, and the heart of global production, businesses will need to hedge their operations in case of a future outbreak or similar global upheavals. It can be done by adopting a mix of local and international manufacturing sources or stocking up on goods to avoid supply disruptions.

3. Improvise – Business focused on talent

Most of today’s jobs will not exist in 2030. Machines and software are sufficient for many jobs that in the past were reserved for humans. The third element to business recovery is to take stock of functions that can be mechanized, and focus on talents that can help you differentiate, and take you in the future. Reskill or upskill your workforce for new technologies and futuristic decision-making.

4. Digitalize – Business centered on technology

Among the fistful sectors that are still upbeat include those in digital economy. In telehealth – Teladoc Health, for instance, in fitness - Les Mills on Demand application, Netflix for streaming services, Zoom in video conferencing, and online learning and professional certifications, along with other tech products and services. Place yourself where businesses are thriving. Go digital, partially or as a whole.

Gloom cannot be destiny, and status quo not a strategy. Be mindful of the changes taking place in global value systems. Accounting economic factors and aligning them with business aspirations can be innovative solutioning corporate planners need. Strategize to meet market demand when the economy picks up again. Learn turnaround tactics as a certified Business Strategy professional and adapt to build economically sound futures that last.

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