anks.
What began as a crisis in fi nancial services spilled-over
to the broader economy and created a severe economic
downturn. In November, unemployment growth in the
United States reached a 26-year high.
These events fundamentally transformed future
expectations for the U.S. and global economies.
Worldwide growth expectations ratcheted down
severely, and the World Bank predicts the world
economy will grow at 0.9 percent in 2009, the
slowest rate since data has been available. As policy
makers and central bankers worldwide grapple with
averting defl ation and stagfl ation, central banks
and governments from the United States to China
committed to massive, incremental public expenditures
that ranged between fi ve and ten percent of their
respective gross domestic products. These expenditures
should stimulate and grow the global economy unless
new problems arise in the next 18 months.
This combination of a worldwide credit crunch and a
recession with possible defl ation creates a unique and
unprecedented set of circumstances. CFOs will have
to navigate two distinct challenges. First, they must
manage their short-term credit, cash and performance
needs – despite receding pricing-power. Second, they
need to effectively position and utilize assets with an
eye toward post-recession growth. In recent years, such
downturns have typically lasted 10 months or less, but
most economists and CFOs do not expect the current
recession in the U.S. and the major European countries
to turn until the end of 2009. Growth will continue in
many developing economies, albeit at slower rates.
High performers seize the opportunity
of a recession to outdistance their
competitors and position for future
growth.
2 CFO Program Brief – Recession: How will you play to win
These unprecedented times require CFOs to be effi cient
operators of their fi nance business, stewards who
manage to preserve value, catalysts for changes that
drive new effi ciencies and strategists in a new, postrecession
environment. The playbooks they develop
will need to ensure the availability of cash and value,
navigate the current downturn, renew growth under
varied economic-recovery scenarios, and manage risk.
Finally they need to be prepared for major shifts and
risks in the global economy.
The credit crisis playbook
A critical priority for most CFOs is to assure suffi cient
cash for their company to operate without interruption.
This is especially the case for highly leveraged
companies. In recent months, the market for auctionrate
securities, commercial paper and bank loans
froze, and the terms and covenants required for cash
fi nancing became more stringent. New stock issues
through public markets are also unattractive. These
conditions have not eased despite massive injections of
liquidity and capital into U.S. and Euro-zone banking
systems. For example, the spread between the 3-month
LIBOR and the 3-month Treasury bills remains over 1.5
percent. This spread, a measure of interbank lending
rates and risk, remains substantially higher than typical
spreads of between a quarter and a half percent in an
economy where credit fl ows more freely among lending
institutions. Until these rates decrease and credit fl ows
more easily in the banking system, credit to corporate
borrowers will remain expens
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