The 2030s sounds like a far-off future. It is not. The reality is that we have four years to prepare for a seven-year global downturn. Developing business resiliency is a process that takes years to fully develop if it is to be meaningful to the business. Couple that with the prospects of “Profitless Prosperity” over the preceding four years, and the imperative to be strategically focused on resiliency becomes even greater.
The US Total Industrial Production chart below illustrates our forecast for industrial activity through 2028. At our upcoming Executive Series Webinar, we will fill in the rest of the outlook for 2029 through 2036. Spoiler alert: the coming downturn will be more severe and more prolonged than any decline you see on the chart. Preparation for the 2030s Depression should begin now. It starts with developing a strategy to avoid Profitless Prosperity.
Profitless Prosperity occurs when revenue rises (see the forecasted rise on the chart) but margins are not sustained, let alone increased. The next round of inflation, coupled with the effects of nationalism, will create a sustained period of broad-based escalating inflation. Failure to be laser focused on maintaining or growing margins will position businesses poorly for the stresses of the 2030s Depression. Getting the balance sheet into the best possible position heading into a period when cash is king and legacy markets are prone to disappoint is crucial. Decreased profitability will also hinder the execution of shifting into the more resilient markets and gaining share in these new markets to offset the decline occurring in legacy markets.
Failure to consider resilience will result in situation like this: Firm A derives 70% of its revenue from the automotive industry. Notice the lack of growth this century and what transpired in the Great Recession of 2008 and 2009, keeping in mind that the 2030 to 2036 decline will be more severe. Firm A knows they need to make some moves to avoid falling headlong into the Depression. Firm A determines that what they are currently doing is transferable to the boating industry, a place where they have no market share today. The next chart shows US Boat Building Production. It is a highly discretionary industry that has historically performed poorly during recessions. Firm A had the right idea but failed to select a resilient market. Firm A will feel the full force of the 2030s Depression.
Do not be limited by what you do now. Be imaginative about new applications and question what you can accomplish via engineering and marketing. Remember, the goal is to gain market share in a new market(s) that is less prone to experiencing the full magnitude of the coming Depression. Avoiding the pitfalls of Profitless Prosperity and strategically selecting the markets that will make you more resilient is an imperative that must be undertaken now.