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Businesses profit from economic recovery

Ed Nusbaum Ed Nusbaum

Ed Nusbaum advises businesses not to forget the pain of the financial crisis

History will look back on the financial crisis that began in 2008 as a major shock to the global economy. IMF managing director, Christine Lagarde, has talked about the "scars" it left behind. Just as when a sportsman or woman suffers a severe injury, it takes time for economies to rediscover their best form.

The past five years have seen a number of false dawns for the global economy; flashes in one region of a recovery taking hold, only to be dashed by trouble rearing its head elsewhere. In the immediate aftermath of the financial crisis, emerging economies raced ahead, but now advanced economies such as the UK and US are growing much faster than Brazil or Russia. At the recent IMF meet in Washington, Lagarde said the global economy had entered a period where the "new normal" was for growth of around 3%, which is low by historical standards.

However, businesses seem to be slowly adjusting to this. Global business optimism averaged 41% in 2014 according to our International Business Report, a six-year high. And when businesses are more certain about the economic outlook, they are more likely to take risks and to invest. Expectations for revenue and profit have both ticked up slowly over recent years. But perhaps the most dramatic and welcome improvement is in employment indicators: more than a third of businesses expect to add jobs over the next 12 months (34%), up from around a quarter in 2012-13 (26%). Given that job creation tends to lag recoveries - as business leaders wait for sustainable growth before making long-term investments in people - this bodes well for future growth, not least because lower unemployment should push up consumption.

When businesses’ backs are against the wall, as they were during and immediately after the financial crisis, risk taking is harder. Taking on new people and increasing profitability are inevitably sacrificed as survival and maintaining market share take priority. Efficiencies are sought, costs are cut and, if done well, more streamlined organisations emerge. So this steady increase in employment and profitability expectations is clear evidence that as the economic recovery slowly but surely takes hold, businesses are seeing their instinct for growth return. They are investing and perhaps engage in calculated levels of risk they’d previously been afraid to consider.

This long-term improvement will be further justification to those who say that this time, the economic recovery really is back on track. Of course there is some uncertainty, not least in Europe, and the Federal Reserve will cause ripples, if not shockwaves, across global markets when it finally decides to increase interest rates.

But I remain optimistic about growth opportunities for dynamic businesses and expectations that profits and employment will rise are proof of that. Business leaders developing growth plans are doing so with ever-growing confidence but an awareness that fragilities in the global economy could remain in the months and years ahead. They must ensure that confidence does not overspill into complacency.

Even as the good times return, business leaders should be mindful of maintaining their productive, lean efficiency by remembering the injuries caused by financial crisis and looking back at the scars it left behind.