Navigating Economic Downturns and The Role of Technology in Helping Industries Traverse the Unknown

Over the past few years, markets have faced five significant "uncertainty shocks." The first was the 2016 Brexit vote, followed by the U.S. presidential elections, trade tensions between China and the United States, the COVID-19 pandemic, and, in 2022, the Russian invasion of Ukraine. As their cumulative effect, the global economy took a hit, and with mass layoffs, rising inflation, and high-interest rates, experts believe that we are staring at the face of a recession.

“We are now expecting global growth to be around 1.7%. This is half of almost what we expected six months ago. So, the global economy is on a razor's edge. Even a small shock can trigger an outright recession,” says Ayhan Kose, Director of the World Bank’s Prospects Group.

Surviving the Storm: How Businesses are Weathering the Economic Turbulence

Back in June 2022, the World Bank announced that the world is entering a lengthy patch of weak growth owing to “significant disruptions in trade and food and fuel price shocks, all of which are contributing to high inflation and subsequent tightening in global financing conditions. ”

“Higher energy and food prices will weigh on household demand and will affect heavily poorer segments, who devote 50 percent of their monthly spending on food and energy,” said Cristina Savescu, World Bank senior economist for the EU countries.

The food crisis has worsened due to the conflict in Ukraine. The Food and Agriculture Organization's Update of the Global Report on Food Crises (GRFC) stated that the number of people facing acute food insecurity in mid-2022 was the highest in the six-year history of the report. A staggering 205 million people in 45 countries were facing acute food insecurity and required urgent external assistance.

The price volatility, supply shortages, security issues, and economic uncertainty have contributed to what the International Energy Agency (IEA) is calling “the first truly global energy crisis, with impacts that will be felt for years to come”.

The surge in energy prices is the most prominent change we are witnessing. According to IEA, approximately 90% of the overall increase in electricity generation expenses worldwide is attributed to elevated fuel costs. This, combined with the impact of the global pandemic, is resulting in 70 million people who consume electricity being unable to afford it, while a roaring 100 million might revert to using biomass for cooking rather than clean fuels.

While higher costs for traditional fuels may encourage the transition towards sustainable alternatives, there remains a high probability that concerns over energy security could drive further investment in fossil fuel initiatives.

A  new report by energy thinks tank Ember shows that Europe’s green energy transition is already in motion. Solar and wind power generated more than a fifth (22%) of its electricity in 2022, pulling ahead of fossil gas (20%) for the first time, according to the European Electricity Review 2023.

Businesses, in general, were reframing their operational models to assure long-term growth since the downturn spiral began with the Covid-19 outbreak, followed by a recession. These jolts prepared the retailers for the rude awakening of global inflation and the Ukraine war.

Global inflation intensified, and supply chain issues that tore the economy due to Covid 19 restrictions rose to an all-time high when over 300,000 companies based out of the US and Europe were affected due to their supply dependencies on Russia and Ukraine.

Supply chain issues created a ripple effect leading to a significant surge in gas prices worldwide. In 2021, the average cost per liter of gasoline in The Netherlands was around $7.11 per gallon, but by March 2022, the price had risen to approximately $9.43 per gallon, according to Statista. The United States also saw a surge in gas prices, with prices reaching record-breaking levels of $4.17 per gallon.

The increase in gas prices led to an increase in shipping costs with additional charges for deliveries. For the China- EU shipping lanes, TIME reports “Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record $10,522, a whopping 547% higher than the seasonal average over the last five years.”

Amid economic uncertainty, rising living expenses, job insecurity, and other mounting concerns, consumers have shifted their focus to prioritizing essential purchases and reducing discretionary spending. As a result, the largest warehouse and distribution market in the United States is experiencing difficulties with its merchandise, with slowing sales of clothing, electronics, furniture, appliances, and other goods. This setback is not limited to small and mid-size retailers, as even major retailers such as Walmart and Target have been impacted by markdowns.

In response to the changing consumer behaviors and cold economic headwinds, big names in the Tech and FinTech industries that hit a record high during the pandemic, are cutting down headcounts.

According to Layoffs.fyi, a total of 121,205 tech workers have been laid off in 2023. The reasoning behind these workforce reductions follows a common script, quoting macroeconomic environments leading to cutting operational costs and increasing profitability.

Tech-nically Speaking: How Innovation Can Save the Economy (and the Planet)

The current crisis presents a rare opportunity to hit the reset button and steer the world toward a more sustainable future. With the global population growth and aging, coupled with a resurgence of extreme poverty, there is a need to enhance productivity by doing more with less and reducing natural resource consumption.

To achieve this, a fundamental transformation is required across the major sectors that underpin our economies, such as healthcare systems, infrastructure, energy, and transportation. In essence, our daily lives need a significant overhaul.

Industries are desperate for a revival and as it appears, technology has been crucial in maintaining the functionality of our society and economy during this crisis and can play a monumental role in driving a sustainable economic recovery.

A global study conducted by PR Newswire of over 1,000 professionals concluded that automation had become a fundamental technology for businesses to face the uncertain economy.

95% of the participants regarded automation as the key component in their transformation strategies. 94% reported that it is widely used to tackle supply chain problems, and 61% strongly agree that it has also addressed staffing shortages. Furthermore, 92% of the respondents have adjusted their automation plans to some extent in response to global events that took place in the past year.

Deloitte's 2022 Global Intelligent Automation survey reveals that 74% of participants have already implemented robotic process automation (RPA). In addition, Gartner Inc. forecasts a 17.5% growth rate for the global RPA software market in 2023.

In this highly volatile market, companies can leverage Artificial Intelligence to collect data such as prevailing market trends, key business drivers, demographic information, real-time happenings, etc. to offer clear insights and curate personalized interfaces for enhanced user experience. According to a survey, 87% of marketers report positive results from personalization.

As per a study conducted by the Cambridge Centre for Alternative Finance (CCAF) at the Judge Business School of the University of Cambridge and the World Economic Forum, the use of artificial intelligence (AI) is bringing about significant changes to various models in the global financial services industry.

It showed that AI is changing how financial institutions generate and utilize insights from data, which in turn propels new forms of business model innovation and reshapes competitive environments and workforces. They are lately shifting from mainly using AI to reduce costs to utilizing its capabilities for revenue generation.

The pandemic reminds us that healthy economies are directly proportional to healthy populations. The healthcare system is also under pressure due to insufficient resources and rising costs. The technology here can be used for diagnosis and suggesting treatments. Digital assistants powered by AI, for example, can assist radiologists in processing medical images and hence help with diagnosis.

The shift to a clean economy represents one of the most significant challenges and opportunities of this decade, considering that fossil fuels generate 80% of the world's energy consumption. This transition will require a profound overhaul of manufacturing processes, energy consumption patterns, and transportation methods.

Electric cars, buses, trucks, trains, and ships, in conjunction with promoting renewable energy, can help decarbonize the transport sector, which currently contributes to almost a quarter of all global emissions.

Hydrogen-based solutions are emerging as a fast and efficient way to accelerate the transition toward sustainable energy. As part of this effort, Siemens is collaborating with Deutsche Bahn, a German railway company, to develop fuel cell trains powered by hydrogen, aimed at replacing their diesel fleet. By switching to hydrogen-based propulsion, the new trains will save approximately 330 tons of carbon dioxide annually.

Smart grid technologies also have the potential to facilitate the integration of renewable sources while ensuring a reliable supply of energy. An example of this is a smart microgrid in Northern California that has been saving a tribal community more than $200,000 annually in energy costs, while also reducing carbon emissions by 200 tons per year.

As it goes, technology alone cannot counter the challenges to a sustainable economy. It requires solid decisions and collective actions. Companies must invest in new technologies, even in times of crisis, while governments must implement policies and stimulus programs that drive transformation and innovation.

According to McKinsey, those companies that invest in innovation during a crisis outperform their peers during the recovery. And industry leaders could potentially achieve a greater productivity increase from investments in new technology than followers (70% vs 30%), according to a study from the World Economic Forum.