EY ITEM Club Autumn forecast
The current combination of decelerating global growth and escalating risks means all companies should revisit their exposure to shocks and have robust, up-to-date plans in place.
EY research suggests this message is getting across. Our latest Capital Confidence Barometer shows an increased focus on political risks, reflected in relatively cautious growth strategies supported by ongoing cost control.
So, what risks should businesses have on their radar? First should be the danger of the Eurozone heading back into recession and possibly full-blown crisis. Companies should dust off their contingency plans and be ready for a series of potential shocks; possibly starting with the results of the Asset Quality Review (AQR) of European banks, expected in early November.
Another risk is currency movements. These are already catching corporates out, and were blamed for 20% of UK profit warnings in the second quarter of this year. With continuing economic uncertainty, companies must ensure their forecasts reflect the range of possible outcomes.
At the same time, the UK’s risk profile has increased – especially political risk. This poses clear threats to FDI, an area where the UK’s political stability and certainty are usually its comparative advantage. Again, it’s time for companies to review their plans.
Also, investment has been faster than previously thought, especially in IT – so companies must watch for any risk of lagging behind or being squeezed.
And consumer-orientated companies face stable but unspectacular growth in consumer spending, with shifts between products and segments. They must be ready for these conditions.
More generally, for all businesses in every sector, the question is this: is your business model appropriate for an environment of steady, unspectacular growth?
Mark Gregory, EY Chief Economist