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.
Global business optimism reached a six-year high in 2014, with 41% of businesses feeling confident, according to our International Business Report. As economic outlooks improve, businesses are taking more risks and investing more, leading to gradual increases in revenue and profit expectations. The most notable change is in employment, with 34% of businesses planning to add jobs in the next year, up from 26% in 2012-13. Since job creation typically lags recoveries, this positive shift indicates promising future growth, and lower unemployment should further drive 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.