As The World Continues To Grapple With Fears Of A Recession, Here's What Businesses Can Do To Navigate Uncertain Economic Conditions At the end of the day, remember that no matter what your business is, no matter how technologically advanced it is, people are still key to success.

With the consequences of the COVID-19 pandemic fading away, and the world seemingly adapting to the impact of geopolitical tensions, especially when it comes to energy supply and related prices, one might be inclined to think that a full-blown recession affecting the world economy is a risk that is not actual anymore.

The truth, however, is that while the odds of such a recession have become lower, we are not completely out of the woods as yet. The inflation is still high in all leading economies, and the factors that can be looked at as leading indicators have not, in my opinion, substantially been impacted by the change in monetary policies.

In the last Federal Open Market Committee (FOMC) meeting, the interest rates in the US were not raised, but the Chair of the Federal Reserve of the United States, Jerome Powell, clearly hinted toward further hikes within the end of the year. He is, of course, completely aware of the lag with which monetary policies deploy their effects. Yet, by mentioning further hikes, he signals that at the moment, the risk of the inflation ticking higher is still relevant. This is even more the case for the European Central Bank, which actually raised again the interest rate by another 25 basis points, continuing a streak of rises that started in July last year. At the time, that had brought the main rates to 3.5%, and it's important to note that this had happened despite the inflation signaling a stall in its upward trend.

While the tightening of monetary policies have been sparked by the raise of the inflation, following the supply chain disruption as well as the commodity prices issues caused by the combined effect of the post-pandemic recovery and the geopolitical tensions, there is, as I have been signaling for several years, a massive underlying problem of money excess created by the extremely accommodating monetary policies by the Central Banks. They have, by setting sub-zero interest rates and deploying all sort of quantitative easing techniques for well over a decade, created an excess of liquidity that has created bubbles in many critical sectors of the economy. It was just a matter of time that the bill would come due, and it did in the form of inflation and other serious imbalances, also in the financial markets.

In such a scenario, being overly optimistic would be risky. In times of uncertainty, firms need to review their plans, and be more cautious in managing their cash flows, and putting efforts into creating adequate buffers to harbor any storm that might be looming going forward. The cost structures thus must be revised and well as the investment plans, running suitable stress tests to understand the impact of the economic downturn proving to be more severe than it appears at the present moment, and making sure the structure is redundant and resilient enough to face such an event.

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However, this does not mean that firms should stop investing. That would be detrimental when looking at the ability of a firm to face its competitors, existing and possible newcomers, and ultimately, harming the long-term sustainability of the business. Proper risk assessment and management, embedded in the governance of a firm, and run by experienced professionals is key here, even more that it is during "normal" times. What would therefore drive a sustainable investment strategy is to refocus the spending on those investments that would really matter. So, for example, push hard on digital transformation, and the analysis of new technologies like generative artificial intelligence (AI), capturing all the incredible potential of such technologies, while, at the same time, being well aware of the risk associated to their use.

Another activity that is very important in time of uncertainty is to analyze the supply and distribution chains, in order to detect the weak points that could negatively impact the core business and the investment plans, and then identify and even preventively build alternative channels to build resilience through redundancy. Linked to such activity is the review of all partnerships and collaborations in order to analyze their readiness to adverse scenarios, and to make sure to tighten the link with those partners that prove to be more resilient.

As contradictory as it might seem, this is also the time to review one's product offerings, looking at how existing products would possibly perform in different scenarios, and determine which new products or services might be created to be at the forefront of the competition in relation to the different outcomes of the actual situation. And to do all this, talent is needed! So, be wary of facing uncertain times by downsizing one's headcount to cut costs- while it might look good to inexperienced boards in the short term, it might pose serious harm to the very sustainability of whatever business a firm is carrying on.

At the end of the day, remember that no matter what your business is, no matter how technologically advanced it is, people are still key to success. Lose your talents, or fail to attract the right ones, and you will be set for failure, especially when the competition becomes fierce during an economic downturn.

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