Is the recession over?

Jun 30 2009 by Neil Warwick, The Journal

IS THE recession over? Has it "bottomed"? Can we see green shoots appearing? These questions were top of most news stories until MPs expenses and Michael Jackson eclipsed the global recession.

Seven out of the last nine major surveys for the second quarter of 2009 indicate that the recession may be past its worst. There are of course, economists who will look at W curve theories or question where and when the black swan will appear in this recession, predicting that things will only temporarily abate before getting worse.

Unfortunately, the economists who are predicting further hardship may be right for some businesses, although not necessarily the whole economy. Much of the period from late 2007 to early 2009 has been one of survival for many businesses, including the banks. As the decline slows and the indicators start moving upwards, there will still be risks for many businesses.

Interest rates will start to rise. Businesses which borrowed heavily to support cash flow will need to refinance quickly to avoid being caught by crippling repayments. Banks will be more diligent in reviewing banking facilities and, unfortunately for some, less flexible.

Both SMEs and big businesses will be affected by the upturn and for some it may present an opportunity to acquire market share or even competitors. For all, it should be a time to start a little late spring cleaning. Bigger companies should, as a matter of course, be reviewing their facilities with banks to ensure they are not in breach in any way. They should also ensure they have retention of title covered off in their terms and conditions. Often, as economies start to recover, big businesses can be exposed to the risk of smaller distributors collapsing, holding on to a huge amount of unpaid stock. It can be a problem proving who owns the stock.

SMEs also need to check facility letters to ensure they are totally compliant. They also need to ensure they have adequate terms and conditions in place, both for their own suppliers and for their customers.

A breach in the supply chain, whoever’s fault, can lead to a loss of confidence. This in turn can result in a lost opportunity to gain more business.

Economic recovery is a good thing. However it would be extremely imprudent of businesses to assume that the worst of trading turmoil is over. Coming out of a recession can be just as bumpy as going in.

For more information on how Dickinson Dees can help assist SMEs in the region, contact Neil Warwick, partner on (0191) 279-9375.