Challenges of the new business reality
Last year was one of economic growth and job creation. Until recently, the outlook for 2020 was one of consolidation of corporate profits and continuity in terms of growth.
At the beginning of March all the forecasts suddenly changed, the Coronavirus arrived in Europe. The events are known by all, the state of alarm is activated in Spain and many other countries, which results in an almost total paralysis of economic activity and a restriction of mobility.
Faced with the fall in demand, companies were forced to stop production, lay off employees and adapt their costs to an uncertain situation of minimum income.
Governments and Central Banks reacted quickly with proposals for monetary and fiscal stimuli, facilitating access to credit and liquidity.
Today we are facing the reopening phase of the activity and the socio-economic changes that have arisen as a result of the measures to contain the pandemic. We find ourselves in a new reality of the markets after the destruction of part of the productive fabric (supply) and a reduction in disposable income (demand); which will result in a different environment: more digital, less global and more indebted.
Funcas’ latest forecasts for Spain point to a drop in GDP of -7% for this year. It will be followed by a strong economic rebound in 2021; however, not everything lost as a result of the crisis, called the Great Lockdown by the IMF, will be recovered.
Another key element facing the Spanish economy is the unemployment rate, which may exceed 20% at the end of 2020 and more than 22% if ERTEs are taken into account.< /p>
We will face new scenarios that are presented as a blank sheet of paper. It is in the hands of businessmen to emerge stronger from this situation, focusing on it as an opportunity and not as a weakness. We must be resilient, have a future perspective and take the necessary measures for survival in an agile way.
Good companies are already taking steps to come out of this crisis stronger, such as:
- Professionalization of the company; it is a great opportunity to strengthen human capital by hiring competent personnel.
- Divestment; sale of non-core assets that allow the company to focus its resources on the main activity and generate liquidity.
- Strategic partners; incorporate new partners that strengthen the Balance and add value to management.
- Inorganic growth; consolidate the position in the sector taking advantage of the opportunity of acquisitions at more adjusted valuations.
- Digitalization; the company’s digital transformation is accelerated.
- Geographical growth; search for demand in geographical areas with the greatest growth, such as Asia. For example, China and India will be the exception and will not enter a recession in 2020.
To summarize, at Vinca Capital we think that we must clearly differentiate the measures that we should have taken at the time of the outbreak of the crisis from those that we must take now in the post-crisis phase. In the crisis stage, we experienced an initial shock in which the urgency in decision-making and the measures to preserve the liquidity on which the survival of our business depended prevailed.
We are now entering the post-crisis phase, where our tactical and strategic movements must give us a projection from which we can come out stronger.