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Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School

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Businesses are holding back the recovery

Double dip? Recovery neutered by Government cuts? You can read my other blogs on these topics but the fact is that there are many new realities for everyone to accept and adjust to – but this new order has yet to be fully recognised. Some things may not change as much as one might expect (e.g. reckless credit given on credit cards, questionable banking practices and more) but for most people and businesses the balance between spending/investment and saving/retaining funds is already a major influence on the world economies suffering from the recession.

Both individuals and businesses have re-defined what constitutes discretionary spending and what is essential. This trend is governed by a level of uncertainty over the economic outlook and realisation that shiny new cars every two years can instead be every three years and holidays need not be enjoyed at the end of a 7 hour flight; they can be nearer to home. Businesses in this vein have hugely reined in marketing, training, and conference and exhibition expenditure for example. Even R&D has taken a hit. But there are many areas where corporate expenditure has decreased due to ‘the economic climate’ as much as economic force majeure.  In other words, it is sentiment that is driving this.

Of course, this is not all bad, lack of prudence in part caused the recessions so a reversion to more conservative behaviour will also create a less debt burdened economy. The downside is that businesses and consumers in deferring expenditure are also slowing the recovery.

This is most noticeable with large to very large businesses who are amassing vast cash piles at the moment. There is under investment and under expenditure on the services that SME’s can provide. Business investment represents circa 10% of UK GDP and yet it fell by over 24% in the two years to December 2009. This far exceeds the fall in sales and broad GDP.

Businesses need, with the encouragement of investors to start to invest and take some risks. That is what business is about and whilst advanced economies are playing it safe the new world of the BRICs is catching up fast.


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