If you listen to just about any economic commentary, 2008 will be at best a year of continued economic downturn and at worst a full-blown recession. Depending on whom you listen to it’ll either be the most depressed year since 1991… or 1981… or, heaven forbid, the 1970s.
Predictions suggest 2008 is ripe for further drops in retail spending, a weakening of the pound, reduced mortgage lending, falling house prices, increased unemployment, rising oil, gas and food prices and further increases in public sector net borrowing.
The Bank of England responded to surging inflation and the onset of a credit crunch to cut interest rates to 5.5% in December and forecasts suggest 4.5% is realistic before too long.
Western banks offer no sign of light at the end of the tunnel, with £250bn worth of bad debt expected to be written-off this year. US house prices are falling at their fastest rate in 26 years, while the threat of a consumer borrowing crash continues to loom large. As a result, banks are expected to become increasingly cautious.
Today, the Bank of England revealed household lending dropped in the final quarter of 2007, while high street giants Next and DSG International, owners of Currys and PC World, revealed tumbling sales. DSG suffered a 20% drop in share price after reporting profits could be up to £50m below expectations.
Crucially, few expect the current downturn to be a blip followed by a relatively swift return to stability as in previous periods of decline in 1987, 1997 and 1998, which despite much gusto from warmongers passed relatively smoothly. The concern about the economy’s current woes is the lack of an apparent antidote.
In short, if it doesn’t descend into a full-blown recession, the economy in 2008 looks poised to provide a stark impression of one.
All considered then, with consumer spending power blunted and banks and investors increasingly risk-averse, it mightn’t seem the best time to start a business. Except, perversely, it could actually be a great time.
Recessions, while bad for business overall, can be periods of opportunity for start-ups. The one guarantee is that while people might have fewer pounds in their purses, they won’t stop spending altogether. Instead, they’ll just be more careful how they spend and they’ll demand, and search harder for, value.
On one front that’ll fatten the pockets of Tescos, on the other it creates a survival of the fittest mentality that separates the wheat from the chaff and which lends well to small businesses’ flexibility to respond to customers’ changing needs.
Big businesses are notoriously immobile and pedestrian, failing to react to changing markets and then overreacting with clumsy drastic cuts – and when they do this, they present opportunities for new businesses and innovators.
Quite often, the skilled casualties of corporate cutbacks also find themselves forced into entrepreneurship and end-up using their inside knowledge to fight the machine they once oiled the cogs of.
Out of every recession comes a batch of exciting, innovative new businesses.
The internet has democratised business and with barriers to entry now lower than ever before, today’s start-ups are certainly better placed to take advantage of opportunities than in any previous downturns.
And while funding, especially for growth, may be more difficult to acquire than in recent years and has been discouraged by the government, the mechanisms for funding are better developed than in the past.
So while in 2008 it might prove tougher to convince people to part with their pounds, a challenging economic climate could actually offer a wealth of entrepreneurial opportunities and greater margin to impress.
And, as they say, if you can survive a recession chances are you’ll flourish once it’s over.
