Recession risks and rewards

Pessimism abounds that the global economy will slip into recession but that doesn’t mean you need to delay projects or run and hide.

By Ranjit Thambyrajah

The biggest and best opportunities can arise during a recession if you have the right strategy. In the 1980s it was called being counter-cyclical. I’ve always called it making your own path and not following the herd.

To summarise the current ‘market’ situation, near-full employment in major economies, including America, is fueling inflation. Central banks are fearful of out-of-control inflation, so they use the only tool they have to quell it: interest rate increases. If official interest rate increases go too far too soon, the result can be a ‘hard landing’ or recession.

Technically a recession is three consecutive quarters of negative growth and that’s never great for business. Risks to avoid if there is a recession on the horizon include over-paying for assets and entering short-term funding deals that expose you to future rate hikes at inconvenient times.

We are at the point in the economic cycle when it is important to have common sense and stick to the fundamentals. Recovery comes after every recession so there are rewards to reap right now if you have the fundamentals right.

We keep hearing about interest rate ‘hikes’ but we are still in a period of historically low interest rates. It is a great time to borrow for the longer-term, particularly if you have a large project that you need to finance.

If, for example, you are at the beginning of a major infrastructure project with a five-to-10-year horizon, why not make sure you lock in the required funding now rather than expose yourself to the risk of needing to renegotiate loans one or two years down the track when rates are expected to be higher?

Major banks are usually the first to ‘adjust’ their rates when a central bank announces an official rate rise so don’t make the mistake of going to your usual banker and expecting the best deal. Consider other, more competitive funding sources.

Institutional investors, hedge funds and family offices will be looking for secure places or safe havens to invest during a recession so they will be happy to lend to recession-proof projects with solid fundamentals such as those related to food production, infrastructure, health or education.

The interesting thing about a recession is that governments and their private partners still need to build roads, hospitals and schools. In fact, there can be more demand for job-creating, growth creating opportunities as a way out of the economic doldrums. It’s all a matter of being in the right place at the right time.

Acuity Funding is in a strong and unique position to work with you to secure the best available funding for your project right now.

Through our global desk and as a member of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), Acuity can deliver major funding across borders for new and existing clients.

Acuity is a SWIFT member as a Non-Supervised Entity active in the financial industry. That means SWIFT considers Acuity Funding to be an organisation that can engage in payment, securities, banking, financial, insurance, or investment services or activities to Supervised Financial Institutions, such as banks, and/or to third parties.

Our mission has always been to connect investors with those needing funds by providing the highest levels of transparency, transactional speed and efficiency and that means we are ready to help you recession-proof your project pipeline.