Expectations for the 2030’s
Expectations for the 2030’s
We are headed toward a rough business environment in the 2030’s, a kind that none of us have experienced before. You have probably read or heard some headlines about the factors that are sounding alarm bells. It is important to take the time to dig deeper into the fundamentals of why some of the biggest financial thinkers are predicting a large adjustment. I continue to research and reflect on the three main drivers:
Demographics have been the story of global success for 35 years, now they bring an abrupt inflection point. The Baby Boom generation is not only finally retiring from the workforce they are also withdrawing their accrued wealth from financial markets to use for living expenses.
The big debt cycle in the U.S. is nearing the phase of required deleveraging which will deeply impact inflation, interest rates, and growth prospects. Not only is government debt increasing exponentially we are also faced with hard decisions on how to pay for the associated interest. The primary way to deal with this is to “print money” at high levels which will create latent inflation and increase interest rates. This will also devalue the U.S. dollar for an extended period until equilibrium is reached.
Geopolitics will continue to be a distraction as all mature economies will be dealing with the very same issues. Add in that the U.S. is decoupled from reliance on the global energy market which is driving our focus inward. In this changing environment there will need to be a counterweight to Chinese and Russian aggression which keeps the U.S. engaged. Our highly integrated global supply chains will be affected more than ever.
These macro level themes can seem too big to contemplate as part of your strategic business review. Let’s put this in terms of potential impact:
There will be a talent and labor shortage even while economic performance starts to turn down. Now is the time to focus on your talent pipeline and your differentiation as an employer of choice. Also, get ready for wage increases of 25-30% over the next four years. People are your best asset.
Compounded cumulative inflation over the next four years will be around 30%. Build input cost increases into your business plan. Become really good at increasing your prices on a cadence to adjust for added input costs. Strategically plan for continued increased cost inputs now.
With increasing interest rates for the foreseeable future there will be pressure on your borrowing profile. Now is the time to review the current state of your financing as well as explore options to minimize the impact of increased rates in the next few years. Review capital investment needs to improve productivity and differentiation as well as necessary working capital. Stabilize your balance sheet and borrowing position now.
There will be an extended recession in the 2030’s, some economists are even labeling it a depression! While we are in the midst of a fairly strong economy it is difficult to step back and imagine being in that place. Focus on your business fundamentals and future differentiation now.
This might all sound like Chicken Little “The sky is falling!”. Even if the dire nature of these expectations is off by 50% it is worth your attention. Going beyond typical annual strategy planning to do a deep strategic review of your vulnerabilities and preparedness is well worth the effort. Now is the time so that you have the runway for your team to implement strategic actions.
Let’s have an extended conversation about these expectations including going deeper into the research and thinking. Bringing it all together while focusing on your particular needs will give you the insights that you need. An engagement with Economics Designed expands your ability to evaluate your potential strategic actions.
This is the power of strategically designing the economics of your business!