Long, slow road to economic recovery

 

There will be more 'circuit breakers' installed in all aspects of business, more oversight and more control.

WHILE there are early signs of the global economy having reached rock bottom and being ready to turn around, don't expect anything like blinding-speed recovery.

Instead, all signs are pointing towards a cautious and slow climb upwards.

The current crisis, like it or not, will change a lot of the ways the world views and conducts its business. We now hear of more state ownerships of businesses, more calls for greater regulation and more stress tests performed especially on the ever-vital banking sector.

It was less than a decade ago that businesses, especially in the Western world, viewed anything regulatory in nature as bureaucracy, as red tape, and that any intervention of the state was against the spirit of an open and globalised economy.

It was the height of free markets and minimal regulations. Now, all that is about to change.

When a Malaysian bank officer said recently that at the bank in which he works, all signings worth more than RM50 million must now go through the board of directors, unlike in the past when top-level executives had the authority to decide, we can expect the journey out of this downturn to be a slow one.

Being the hardest hit, banks are expected to have a lower tolerance towards risk. They would be extra careful in extending credit and the net effect would surely be slower economic growth.

Furthermore, the rising need by governments to conduct stress tests on their respective banking system could mean more state supervision in future. This could translate into less risk appetite among bankers.

We are also seeing a change in how business executives view regulation. Many now acknowledge that regulation is not necessarily counterproductive to an overall healthy and resilient economy.

Some are sure that even management decisions, and the relations between management and stakeholders, will change. There will be more "circuit breakers" installed in all aspects of business, more oversight and more control.

With such an environment being widely expected, we can say goodbye to the days of fast investment decisions, easy credit and, ultimately, robust growth. Indeed, it will be a long and slow climb!