Business pain in a recovering economy

There are two things happening that suggest that signs of economic recovery are believable, rather than government spin.

The first is the narrowing of the trade gap with a significant growth in exports in June and the second is a 10% rise in business insolvencies (compulsory and creditors’ voluntary insolvencies) in the quarter from April to June 2013 (3,978) compared with January to March (3,601).  However, there were actually slightly fewer insolvencies this year when compared with the same quarter in 2012.

Insolvencies generally do increase when an economy is coming out of recession because creditors normally start to lose patience and begin recovering debt when they can see signs of a rising market.

This time, however, I believe something else is going on.

Firstly, for more than two years now businesses have been focusing on paying down debt so why should creditors suddenly lose patience? Secondly, it may be that HMRC is taking a tougher line on collection of arrears now.

But most importantly now that the owners and directors of businesses can see the future more clearly, and there is greater optimism around, they are starting to restructure their businesses because clearly any future growth is not going to be fuelled by business lending.

It is perhaps no bad thing that growth is likely to be slow and steady and will be achieved by businesses ensuring they have enough working capital, by imposing tough payment terms on customers and suppliers and by everyone in the supply chain working together.

The worrying thing is that in other circles there is still too much reliance on a consumer-led recovery and that exports to non-EU countries were lower, playing no part in the narrowing of the trade gap.

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