Inflation and recession
Ibrahim Khalil Jewel: Business has been going through major ups and downs over the world including Bangladesh for several years. At that time there was geo-political tension as well as epidemics and wars. These continue to have a negative impact on the economy. There is still no news of hope before the world. Two enemies are visible like high inflation and economic stagnation. So must be prepared against them.
The last dire situation was in the seventies. So, the question naturally arises as to what should be done or what steps should be taken by those who are in the executive positions of companies today.
The Economist reports that companies have already started taking measures to combat inflation. In 2022, the share prices of companies fell due to several reasons. Motor company Ford said it spent a billion dollars in the third quarter of this year, which is more than forecast. Manufacturing costs at euro zone companies have risen by more than 40 percent year-on-year. There has been an increase in fuel prices. But the hope is that consumer demand is still strong despite rising production costs.
Because various types of government incentives started during the Corona pandemic are still ongoing, which are playing a positive role in American business.
In 2023, managers will face two challenges to sustain profits. The first is the massive increase in production costs. However, fuel price hikes may stop. Yet it will be in a position to contribute to rising wages and other prices. A second pressure may come from falling demand. Even if European governments take action, consumers will spend less. Because their purchasing power has decreased.
The economy is going to be under pressure as a result of increasing interest rates in the United States.
A survey conducted by consulting firm Deloitte found that 39 percent of financial company executives said the U.S. is going to stagnate in 2023. But 46 percent think the U.S. is actually going into an economic recession.
Since various elements of stagnation are inevitable. Therefore, CEOs of companies will formulate mixed strategies. Many of them will try to pass the cost of production on to the consumer. In 2022, McDonald’s raised the price of its cheeseburger in Britain for the first time in 14 years. Other companies have followed the same path. But this matter is not comforting. This is because it can have a negative impact on consumers, which can reduce the company’s market share or revenue.
Many companies cannot do well by raising prices. Because consumers may walk away. So many will implement contractionary policies. For example, chocolates will be smaller in size and will keep the price the same. Some will seek to contain costs through efficiency gains. Rising energy costs have already changed the supply systems of European companies.
Despite the challenges of recent years, many good companies will emerge. Moreover, distressed investors will fire leading executives due to rising costs and collapsing market share. But the reputation of those who do good in the midst of trouble will increase greatly.
Three shocks have combined to cause this turmoil. The biggest is geopolitical. The American-led post-war world order is being challenged, most obviously by Mr Putin, and most profoundly by the persistently worsening relationship between America and Xi Jinping’s China. The resolve with which America and European countries responded to Russia’s aggression may have revitalised the idea of “the West”, particularly the transatlantic alliance. But it has widened the gap between the West and the rest. The majority of people in the world live in countries that do not support Western sanctions on Russia.
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