Fasten Your Seat Belts! The Economic Storm Clouds Are Brewing 

small business economic challenges

It's time to innovate, for small businesses to do more with less again, and/or find self-funding solutions. 

 

GDP growth in the U.S. and globally over the next 18 months will be in the ±1.5 percent range. Corporate revenues have begun to stagnate, as are profits.

Layoffs and restructurings are adding to the uncertainty and budgets are tightening. Business and IT executives should start tightening their belts and plan on slimmed down 2017 budgets.

Bottom line: it will be difficult for small business owners and IT executives to keep current in technology, meet new business demands, and develop the skills necessary to satisfy corporate requirements without innovation.

A confluence of announcements occurred over the past few weeks, all of which point to shrinking opportunities.

At the global economic level, the IMF lowered growth expectations and the U.S. government reported another poor month of growth. Additionally, in country after country government debt levels continue to rise into unsustainable levels; yet the bond markets are in such sad shape that the central banks can offer low or negative interest rates.

As an example, at the corporate level, companies such as Bank of America, Cisco, EMC, Goldman Sachs, HPE, and IBM are engaged in layoffs, mergers, and reorganizations. Good news is hard to find.

The Global Gloom and Doom

Once again the failure of policy makers to fix deep-rooted problems in their economies is forcing the International Monetary Fund (IMF) to signal new cuts in the global economic outlook. It notes that some economies are at risk of stalling and even contracting – and that is putting it mildly.

The IMF intends to lower its global growth forecast from July's 3.1 percent, which is already below the world average of 3.6 percent since 1990. The U.S. forecast will be downgraded as well from the 2.2 percent projected in July. China is down from its highs but remains strong (five to six percent range) while Brazil, Russia, and South Africa are dealing with contractions.

The Eurozone and UK are forecast to see 1.4 -1.2 percent growth.

The U.S. GDP for the second quarter

The U.S. GDP for the second quarter came in at a 1.2 percent annual rate, less than half the rate expected by economists.

This comes after a first quarter pace of just 1.1 percent. For at least four years now economists have expected the annual U.S. GDP to be in the 3.5 to 4 percent range, only to be disappointed by very slow growth. One factor contributing to the constrained economic environment is the massive government debts across the globe, with some countries managing debts in excess of their GDP (Japan's debt is 229 percent of GDP while the U.S. is 105 percent).

Amazingly, with this huge debt overhang, governments are still able to offer almost $16 trillion in government bonds worldwide with yields below zero. If interest rates ever rise, even a little, the impact to government expenditures will be enormous, which in turn will cut real spending.

Business spending on equipment contracted for a third consecutive quarter in the last quarter, which is the longest stretch since the 2007-2009 recession.

More specifically, business spending on equipment fell at a 3.5 percent rate after declining at a 9.5 percent pace in the first quarter.

It is highly unlikely there will be a major pickup in spending as we move towards yearend and 2017. (Bad news for suppliers but potential good news for aggressive buyers.)

Next- The Corporate Struggle ans Summary

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About the author

Cal Braunstein

Mr. Braunstein serves as Chairman/CEO and Executive Director of Research at the Robert Frances Group (RFG). In addition to his corporate role, he helps his clients wrestle with a range of business, management, regulatory, and technology issues. 
He has deep and broad experience in business strategy management, business process management, enterprise systems architecture, financing, mission-critical systems, project and portfolio management, procurement, risk management, sustainability, and vendor management. Cal also chaired a Business Operational Risk Council whose membership consisted of a number of top global financial institutions.

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