Ignore Short-Term Indicators, Focus on the Long Haul

Ignore Short-Term Indicators, Focus on the Long Haul

          
Article image

Ignore Short-Term Indicators, Focus on the Long Haul

In the Eye of the Storm

Management in a Two-Speed Economy, Transformation & Turnaround
  • Add To Interests
  • SAVE CONTENT
  • PRINT
  • PDF

  • It has been a while since we published the last paper in our Collateral Damage series, in which we foresaw depressed global growth for some time to come. Recently, many of the short-term economic indicators have begun offering more encouraging messages. The G-20 finance ministers clearly believe so. They are now saying that government efforts to jump-start the recovery are paying off: “The global recovery has progressed better than previously anticipated largely due to the G-20’s unprecedented and concerted policy effort”—although they acknowledge that progress is occurring “at different speeds within and across regions.”  At the same time, however, the G-20 is urging members to develop credible strategies for reducing stimulus spending and allowing ultra-low interest rates to rise to more normal levels. These exit plans pose considerable risk to the nascent recovery. And the sovereign debt crisis has taken the gloss off some of the G-20’s optimism.

    We continue to find the policymaker and media focus on short-term changes in economic indicators to be unhelpful. Governments and management teams need to take a longer-term perspective, planning for their economies and their businesses in a prudent and more farsighted way. We do not argue against the likelihood of some sort of recovery. Our point has always been that for the West, at least, the recovery after the stimulus effect wears off will be anemic—the sort of slow-growth environment that will change the rules of the game for companies as they seek to grow amid increased competitive intensity. Indeed, our most recent survey of 440 executives in seven major economies shows that managers are less optimistic than their political leaders. We see no reason to change our prediction of the emergence of a two-speed economic world.

    Harry Truman famously asked for “a one-armed economist so that the guy could never make a statement and then say ‘on the other hand...’” In this paper, we look behind the two-armed economist that Truman tried to wish away: we seek to interpret the conflicting economic signals; we describe the findings of our survey of senior executives across a broad range of issues relating to how they view the recovery and the implications for their companies; we revisit some of the new economic realities that we described about a year ago; and we explore the potential implications of trying to rebalance the books in some highly indebted countries.

  • Add To Interests
  • SAVE CONTENT
  • PRINT
  • PDF