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Are you wondering what strategic measures enterprises can undertake to position themselves favorably for 2024? In this blog, we will delve into the prevailing economic landscape in Canada, the United States, and the global arena in which an emphasis is placed on the necessity of exercising heightened financial prudence during these times and to avoid high-risk situations. It’s important to keep a close eye on developments over the forthcoming three to six months, as it promises to yield pivotal intelligence regarding the trajectory of the Canadian economy.
Death of Comparison
There is no denying the sentiment of irritability amongst people about the current state of the economy. The evidence lies in the continuous conversations about increasing grocery prices, housing costs, travel expenses and the looming fear of a recession. This living irritation can be attributed to our feeling of hopelessness as we compare the costs of today with those of the past – and comparison is the thief of joy. Unfortunately, the harsh reality is that nothing remains the same anymore. As Economist Dr. Peter Andersen stated, “What we previously have been relying on to predict future economic conditions, cause-and-effect behavior, is no longer applicable as the groundwork has changed.” We are now in a different ballgame when it comes to predicting business conditions with the increased development of Artificial Intelligence (AI), on-going wars, and one-time climate disasters. To reduce this daily living irritation, start by shifting away from this overwhelming comparison mindset, we are inflicting too much energy into fearing a recession. The economic situation is not in good shape in the immediate future, it will require more time which is why it is critical to determine what can be done now to mitigate the pitfalls that are currently looming for your business.
Risk of Inflation
There is a risk of a second round of inflation from a wage price spiral and wage prices have an immense effect on company selling prices. This wage price risk stems from the situation where productivity is down, there is a reluctance to lay off employees and these employees with little or no fear of job loss are demanding higher pay due to inflation. At the moment, this demand for higher wages seems to have stabilized close to 5% without any productivity offset. This demand for higher wages is expected to persist as long as the economy continues to remain how it has been and there is no offset to force a change such as negative growth of business. In addition, the situation can become more complex with the occurrence of one-time climate events such as wildfires which can result in a post-special event rebound. This was partly responsible for the pause of the interest rate increases by the Bank of Canada and it is likely that the rates will stay where they are for some time. There are some who think that the Bank of Canada might start to cut rates by next Spring, but this could be premature, given that the Canadian economy is in better shape than it looks and therefore does not require assistance from a rate cut. To add on, recently we are seeing the outlook for housing improving primarily because of the sharp decline in US bond yields which will spill over into Canada and into Canadian mortgage rates.
Ensuring your business is sustainable to see a new year
The implementation of a risk management strategy is crucial for your business’s success. To do so, begin by identifying the risks that you are currently aware of and then forecast potential risks that are worth considering. The next step is determining how much could be at loss with these newly discovered risks. As previously mentioned, the current economic landscape isn’t the ideal time to take on risky projects. Instead, now is the time to be cautious and consider all of your strategic options. Hopefully, we will be looking at a rising tide that has brought in sustainability in Q4. Take it from Andersen who said the following: “Although it‘s easier said than done, try your best to be patient and wait until the storm has passed before you take any risks and don’t forget – cash is king for the time being. After all, would you rather lose money by being too cautious or too aggressive right now?”.
How Zeifmans can help prepare your business for 2024
If your business is in need of implementing a risk management strategy, Zeifmans is here to help. It’s never too late to seek financial guidance to ensure that you are taking every precaution to protect your business. Our team has led numerous businesses through every phase making sure each is positioned for long-term financial success. If you have any questions, feel free to reach out to Zeifmans Partner, Jason R. Price at jrp@zeifmans.ca or 647.256.7659.
To view the webinar in full, please click here.
