Ways to manage in a slow-growth economy

A combination of challenges and uncertainties pose threats to the world economy and may weigh down the process of recovery in coming years.
In an attempt to address the economic sluggishness, several approaches have been tried around the world, including loosening monetary policies, several rounds of quantitative easing and government bailouts.
The impact, however, will not be long-lasting unless the underlying fundamentals of the overall economy can catch up with these stimuli to sustain real growth. Hence the world gross domestic product is projected to grow by a steady, yet unspectacular, 3.2 per cent from 2016 onwards.

Global headwinds mean challenges ahead for Thai economy: THE FIRST signs of economic recovery have been visible in Thailand recently and the economy is expected to grow by 3 per cent this year, thanks to higher crop prices and more investments from both the private and public sectors.
The majority vote in favour of the referendum on the charter draft followed by the “road map to democracy”, moreover, is likely to create some political stability and help encourage foreign-investor confidence. Nevertheless, the economy is still facing a tough road ahead as global weakness persists. 
In a country where exports contribute more than two-thirds of GDP, the economic deceleration in Thailand’s key trading partners such as China, the European Union, Japan and the United States, along with the fluctuation of the baht, is causing negative ripple effects to the Thai economy.
Tepid private consumption and investment, high household debt and investor caution due to continued political instability will continue to weigh down the recovery. 
Meanwhile, weak demographics and a shortage of skilled labour, along with higher wage rates and infrastructure development in other Asean countries, will weaken the Kingdom’s competitiveness and suggest lower growth potential in the future.

How to manage in a slow-growth economy: It is evident that we might be on the verge of another economic downturn if the debt crisis in Europe persists and the Chinese bubble bursts. Therefore, it is important for Thai companies to understand the impacts of the global economic slowdown and what it means to their business before it develops into another recession. 
Common business practices to manage in a downturn and recession generally mean radical change in every aspect of the operation. Practical steps such as cost reduction, improving working-capital management, more careful tax planning and even strategic M&A (merger and acquisition) activities can minimise the effects of the slowdown and ensure the company emerges strongly when the economy eventually recovers.
Before planning these steps, Deloitte recommends that organisations develop a contingency plan with plausible scenarios.
Eliminating costs in all areas of the business and reforming salary structures can be a common overreaction in a mild downturn, but can have lasting negative consequences. 
In more severe economic situations, if the organisation does not maintain sufficient liquidity to allow for strategic investments and acquisition, it may lose an opportunity to generate high returns when economic conditions stabilise.
The downturn planning team and finance team must therefore work in tandem.
A company needs to begin by estimating the probability, time frame, and degree of severity for each scenario while developing a baseline financial model for each, relative to current plans, to determine the financial impacts.
With economic uncertainty and complexity during times of downturn, appropriate scenario planning and stress testing against business plans will help determine the optimum courses of action. 
In a mild slowdown, a company should begin by analysing all discretionary expenses to determine where cuts could be made. Non-essential expenses such as internal meetings, low-priority training, and some administrative workflow need to be reduced, while maintaining headcount.
A company should prioritise and invest in its most profitable clients; investments in crown-jewel client/customer programmes are still vital and must continue.
Investment in human capital may be considered to provide training to staff across functions to meet changing service demands.
In the medium and long terms of a more serious downturn, prioritising people and investment are crucial to the business. Instead of reducing or eliminating only non-critical essential discretionary expenses, it is critical to scale back investments significantly in unprofitable areas to “get ahead” of economic weakness.
Adjusting headcount to mirror high-demand sectors or rightsizing the workforce will be necessary if the downturn persists.
Nonetheless, an economic downturn can be seen as a window of opportunity to re-engineer and redesign business process by shifting from traditional operation processes to more modern methods.
Prioritising investments in countercyclical businesses and acquiring depressed businesses are another channel to generate above-average returns when economic growth bounces back.
The words “economic slowdown” do not necessarily need to be seen as a threat to a well-run business: There are opportunities for the company to grow as well. 

Co-authored by Dr Sahanon Tungbenchasirikul, associate director of Deloitte Thailand, and |Dr Weerachai Wiwatchankit, senior consultant at the company. 
In the next article, the results of a survey will be discussed to see how businesses in Thailand see the current situation and how they plan to make strategic moves to cope with the slow-growth economy.