Economic Recovery – The Best Time in History
As many of you will know, I’ve been writing business-in-property articles for YPN since 2013. In that time, we’ve seen changes in the market, the economy, the government and all things strategy, but nothing anywhere near as significant as the last 18 months.
When I wrote this article last year, the world had just been locked down, the economy turned inside out and life, business and property had been impacted and changed to a degree that we have never seen before.
Within this article, I shared the most up-to-date economics, statistics, strategies and forecasts to help you to see through all the media hype and to understand where we actually were, where we were actually going and what you needed to do to capitalise.
Whilst we headed into the worst recession and most challenging climate for 300 years, it caused many injuries, casualties and fatalities … all things considered, my headline sentiment still is that you should have been very excited!
Disclaimer: Please note all data, models, information and statistics shared are accurate at the time of writing (June 2nd 2020).
The UK Economy – What is ACTUALLY happening out there?
Rishi Sunak, Chancellor of the Exchequer has warned that “the UK is heading for a severe recession, the likes of which we haven’t seen.” We also discussed this on the Official Property Entrepreneur Podcast E011, and it has been later qualified by Bloomberg and the Bank of England.
Businesses, sectors and in some cases entire industries have been forced to close and reviewing only a few of the headline statistics, the significance of this impact can be effectively illustrated:
- Worst recession since 1709
- GDP down over 25%
- Company closures due to insolvency potentially up over 50%
- 1.8m new claimants to Universal Credit since March 16th
- 25% (8.4m people) of UK workforce furloughed
- Unemployment expected to exceed 10%
- Additional 3m jobs gone by summer if hospitality fails to open sufficiently
These high-impact statistics and forecasts make the significance of the economic state of affairs reasonably black and white. Throw on top these Brexit, challenges with the EU, emerging friction with China and you’d be well within your rights to say the outlook for business is looking pretty bleak indeed.
HOWEVER!
With great challenge, comes great opportunity. Having personally experienced the difference between building businesses through the boom versus the bust, I can confidently that say without exception, when you master the rules and know how to play the game it can be far more fun, fast and lucrative.
I’m going to explain in very simplistic terms how the next 12 to 18 months is going to be the best time not only in history, but in our lifetimes to be a property entrepreneur.
The Economic Cycle
In simple terms, the UK economy is a machine controlled by a number of levers, primarily government stimulus or controls, in a bid to drive activity/spending, economically known as Gross Domestic Product (GDP).
Mature Market
When the UK maintains a high GDP with a low level of stimulus from the government all is very well. There is lots of air in the economic balloon, from which the government derive their credibility, taxation and income.
Recession/Depression
However, when government stimulus is low and GDP is caused to fall due to an economic change, adjustment or shock, eg the Global Financial Crisis (GFC) or COVID-19 outbreak, low stimulus coupled with low GDP causes a downward economic trend, thus triggering a recession. If left unresolved for a sustained period, this moves into a depression.
The air has come out of the economic balloon and action is required to get things going again.
The Gold Rush
To move out of recession/depression, the government must stimulate activity by providing incentives, opportunities and motivation to kick start the economic flywheel and drive forward commercial activity, and in turn GDP.
To do this, the government are likely to reduce taxation and the cost of finance, and launch initiatives and promote growth. They’ll do everything they can to mobilise the country’s entrepreneurs through support and motivate them to identify opportunities, drive growth and create jobs. Therefore unemployment is reduced and in turn, increased spending to drive GDP.
During this phase, there’s a limited window in which the government not only get out of the way of entrepreneurs and allow them to lead the recovery, but they provide an arsenal of initiatives to promote the essential business and economic growth. This will blow air back into the economic balloon, from which the government can derive their credibility, taxation and income post-recovery.
Boom/Bubble
Once these game-changing initiatives have been put into action, the economy kick starts and once again, the trajectory of GDP returns to a progressive position of growth, confidence and stability.
The masses then shortly follow. The commercial confidence and bull market returns as competition increases, margins are compressed and the cycle and market heads back towards one of maturity.
The Best Time in History
Whilst the cause of this recession could not be foreseen, the damage is significant and the economic landscape unique. However, the journey to recovery and opportunity to capitalise is highly predictable.
Recessions and Gold Rush recovery phases present the most lucrative playgrounds for entrepreneurs who understand how to master the market.
This unique circumstance and landscape is highly unlikely to ever be seen again in our lifetimes. As the government does everything they can to stimulate the economy, the next 18 months is the opportunity of a lifetime. Those who make it now, will make it big.
Click here to read the full YPN article
SO WHERE ARE WE TODAY?
At the time of writing today, we are in the Boom phase of the economic cycle.
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