As Sydney and Canberra struggle under an apocalyptic cloud of red dust Victoria rumbles with last night’s earthquake, it’s worth remembering that our economic stability is very much reliant on a business-as-usual environment.
Wild card or X-factor events pose a clear threat to a prolonged and stable recovery from the recession. Examples include the fall of the Berlin Wall, the terrorist attacks of September 11 and the tsunami in Aceh, Indonesia. Potential future X-factors would include climate change, drought, a North Korean or Iranian conflict, biological attacks or pandemics. Many of these events are geographically distant but any of them could have powerful flow on effects.
In an hyper-connected world, we’ve seen how housing failures in the US can lead to failure around the world. While many expressed concern at the sub-prime loan situation, few saw it turning into a global economic meltdown. The same connections that create wealth in through trade, create vulnerabilities, especially where margins are thin or a business is already under stress.
Few businesses escaped the pain of the most recent X-factor event, the sub-prime loan crisis, as the recession bit hard. How many small businesses could trade through a double-dip recession, having exhausted their cash reserves over the last 15 months? Even an unexpectedly rapid recovery from the recession could be considered an X-factor if it resulted in hyperinflation.
How well prepared is your business for an economic X-factor?