The Economic X-Factor

The Economic X-Factor

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?

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Tags risk management

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