Navigating economic turbulence

May 2023

Even in the midst of last year’s economic gloom forecasters were already predicting that 2023 would continue in a vein of economic uncertainty. It seems to be a widely held perception that, after a pre-pandemic time of relative calmness, the world has entered a period of global economic turmoil.

But do the economic indicators back this up? Chief economists surveyed by the World Economic Forum appear to think so, predicting in January 2023 that geopolitical faultlines will continue to influence global economic activity. More than half expect a global recession in 2023, leading to weak demand, high borrowing costs, and a worsening cost-of-living crisis.

Economic outlook

If we are heading for recession, how bad can we expect it to be? In the latter stages of 2022, many economists believed that some leading economies such as the UK and the EU had already entered recession.

In the US the picture was a bit more mixed, while higher interest rates are dampening the housing market, jobs continue to grow, and the service sector is surprisingly robust. However, the previously announced Federal Reserve interest rate increases are expected to act as a handbrake on US economic performance in 2023 with growth grinding to a halt or even contracting.

As for wider global economic performance, few economists are optimistic especially as China continues to fight Covid infections. Further, the war in Ukraine continues to pose a significant risk for businesses, especially those in Europe that continue to experience the logistical and financial challenge of sourcing increasingly expensive energy from alternative markets around the world.

Facing up to the challenges

This negative economic outlook prompts the question: how should business owners react? Should they go defensive by cutting operational expenses, laying off staff, and optimising their supply chains? Those same chief economists would appear to think so as, in their responses, the majority cited these as their top three actions.

However, of all the challenges facing chief financial officers, more than half of 234 surveyed by Gartner cited recruitment and retention of staff as the biggest challenge they face in 2023.

This is especially pertinent to the accountancy profession where retaining key people is crucial to success.

A time to build resilience

With all the uncertainty and fear of recession, even the most optimistic may be finding it difficult to be hopeful about 2023. This calls for perseverance, determination, and brave decision making. When facing business uncertainty it is essential to build and empower a strong team with diverse skill sets. Perseverance will help you to achieve the goals you are enthusiastic about, goals that the less persistent may see as impossible. Prepare also to be versatile as this will help you to think critically and logically, in turn allowing you to accept and integrate new ideas and perspectives by constantly acquiring the knowledge and skills that each situation demands.

2023 – a year of two halves

Last year was challenging and the first half of 2023 looks likely to offer more of the same with inflation remaining high, global growth slowing, and geopolitical concerns continuing. During this turbulence business owners need to focus on three key areas:

• building cash reserves
• understanding the most profitable activities and maximising them
• emphasising delivery and client retention.

By focusing on these key areas, you can survive a recession and be ready to thrive afterwards when, according to most economists, we can look forward to a brighter outlook in the second half of 2023.

About the author

Andrei Badiu
Bucharest, Romania

Andrei is a partner at Russell Bedford’s Romania member firm 3B Expert Audit, where he is responsible for special audits.

Andrei holds a Master of Business Administration specialising in financial management and international banking and is a member of ACCA, Chamber of Financial Auditors, Romania (CAFR) and Chamber of Certified Chartered Accountants, Romania (CECCAR).

andrei@auditor.ro