Economic State of Affairs June 2022

Economic State of Affairs June 2022

With inflation, the geopolitical status, and supply chain concerns still running rampant, we at Fully Accountable are constantly reminded that the pandemic wasn’t the only obstacle ahead. In this article, we’re looking at the economic state of affairs using a wide range of statistics and surveys to identify what companies can do to ensure their financial stability. 

Though many are pessimistic, there are still positive insights into the economic outlook for the future. Whether you’re an eCommerce business or SMB, the key to surviving these uncertain economic times is to look for what you can control and take advantage of the opportunities afforded to you. 

At Fully Accountable, our team of financial experts are committed to achieving sustainable financial success. We believe there is always opportunity – no matter how scarce it might feel. Whether you need a strategic CFO or you simply need a controller to ensure compliance, we provide a scalable solution to all your corporate finance and digital accounting needs. Continue reading to learn more about our summer 2022 economic outlook. 

Inflation 

Inflation is atop the list of perceived economic threats, according to a Global Consumer survey published by Statista. Geopolitical threats topped most of the survey charts in quarter one and two of this year. However, people are much less likely to cite the geopolitical issues we face as the leading fear. Even in Europe, fears of inflation have superseded the concerns over the geopolitical state. 

Most recently, President Biden signed a $750 billion health care, tax, and climate bill called the Inflation Reduction Act. The bill aims at increasing domestic semiconductor production and increasing benefits for veterans affected by toxic burn pits in Afghanistan and Iraq. 

Though the bill claims to be a widespread relief for the current inflation, Senator Joe Manchin admitted the act won’t immediately calm inflation. Many analysts posit the bill will hardly impact prices, especially in the short-term. The bill also hopes to reduce many carbon emissions by attacking economic sectors, such as diesel production. 

Geopolitical State

Though inflation is chief among most business owner’s concerns, the geopolitical climate is also looming heavy. With the sanction war ongoing between Russia and NATO, there are serious concerns over a possible energy shortage in the upcoming winter in places such as Eastern Europe and Germany.

These regions get much, if not most of their industrial section, as well as their residential heating and cooling energy from Russian natural gas lines. In preparation, Germany has already hatched plans to shelter people in stadiums and the European Commission has recommended a 15% cut for EU member states’ natural gas consumption. 

Though there are international concerns, a dip in oil prices has pushed the price per barrel to pre-Russia invasion levels. Monday, August 14th’s steep decline matched the previous post-invasion low, which registered on August 5th. Oil prices were at their highs in March, amidst concerns over the supply chains in Russia and they have remained above $100 for most of the time since. But on Monday, they reached a low not seen since February 21st. 

Geopolitics have always impacted supply chain logistics, but since the COVID-19 pandemic, they have played a larger role that isn’t expected to change in the foreseeable future. Therefore companies should pay attention to these developments to determine how it will affect their supply chain. 

Supply Chain Issues 

Supply chain issues have been widespread throughout the globe and that shows no signs of stopping. Currently, there are two main supply chain issue developments. One of them has to do with the Chinese heatwave and flat demand at the forefront of why things have stagnated. 

Chinese companies have released statements that overseas demand will be flat at best for the remainder of the year. The threats caused the China Central Bank to cut interest rates in an attempt to support an economy wracked with COVID lockdowns and a property downturn. China’s exports have been a rare bright spot throughout the pandemic.

How Companies Can Soften the Blow from an Economic Downturn

Though there are concerning economic indicators, companies shouldn’t go into run and hide mode. Panicking during these types of economic conditions is the worst thing a company can do.

First, companies should look to the strategic moves that have worked in past tough economic times. Then they should consider the downturn as an opportunity to overtake competitors. Finally, and this is critical for the current economic downturn, companies should look to invest in technology. 

Study Past Successes

Even if we enter a recession, it’s important to understand that recessions are typically  short-lived and the economic prosperity that follows presents ample opportunity to recover. The greatest expansionary time in the modern era was the period that followed World War 2 and the Great Depression. The OPEC oil embargo recession, energy crisis recession, Gulf War recession, dotcom bust, and Great Recession were no different. Each recession was followed by a longer period of growth than the period of recession. 

Take Advantage of Your Competitors’ Struggles

One way to flip an economic downturn into a time of prosperity and opportunity is to consider that your competitors are weaker during these times. Competitors are cutting back and talent is no more readily available than at any other economic phase. Though we are currently in a talent shortage, companies cut positions during tough economic times. That includes R&D projects, employee salaries, and bonuses. 

The same talent joining startups and eCommerce companies might be looking for steadier employment opportunities and you might be able to get them at a lower cost. The Germans have a word for reveling in others’ misfortune: Schadenfreude. This might seem ruthless, but if you want to swim rather than sink, you need only consider the opportunity that your competition can’t see. 

Up Your Digital Spending

Just because tech stock prices are faltering, this doesn’t mean we’re at the end of the digital revolution. With the COVID pandemic, digital strategies are more important than ever. They increase your visibility, offer better resource management, enhance your flexibility, lower costs, smooth supply chain issues, improve customer experience, improve productivity, and feature superior human resource planning. Though technology might not be able to solve all of your financial frustrations, it can certainly help.

Identify Where Your Company Fits In the Economic Cycle

Whatever you decide for your financial strategy during an economic downturn, it should coincide with how the downturn affects your industry. There’s no one-size-fits-all solution to market strife. Industries that are more prone to economic downturns will have to modify their structure and strategy more than companies affected less directly. For some companies, an economic downturn might signal time to pivot. For others, it might demonstrate time to capture profit. The decision will depend on your industry and your ability to see the downtown as an opportunity for your market.

Bottom Line 

Navigating today’s market challenges is no easy feat. But there is hope on the horizon. You don’t have to face these challenges alone because, with Fully Accountable, you can recruit a scalable, fractionalized team of financial experts and strategic CFOs. 
At Fully Accountable, we pride ourselves on staying on the cutting edge of digital accounting. Our controllers and CFOs are here for all your outsourced accounting needs. If you’re concerned with the current economy and how it will affect your bottom line, give us a call.