For the past few years since the Covid-19 pandemic, economic growth around the world has been subject to many constraints, including geopolitical ones, but most of all to cyclical and structural factors as well as to base effects. And every year of economic recovery since the pandemic, we have been speaking of it being the year of slowdown as the best-case scenario and possible recession as the worst-case scenario. Having staved off the worst for the greater part barring some countries that have dipped into small recessions here and there, we anticipate slowdown and then, it isn’t so bad after all. This way, the slowdown keeps getting pushed to next year and so, we should all be wondering if the year of anticipated slowdown is finally here, in 2025.
According to IMF forecasts in their October 2024 World Economic Outlook, they have lowered forecasts for most economies for 2024 over 2023, and growth in 2025 also is muted for many economies/regions. I think that they might lower growth forecasts further for 2025 in their March 2025 WEO which will be issued at the World Bank Group Spring Meetings 2025. That said, with President Trump back in office next year and with his plans to announce wide-ranging hikes in US import tariffs, I think we should be prepared for a year of slowdown more than earlier expected.
The immediate impact, as I have written in an earlier blog post, could even be a seizing up or stalling of global trade especially with global supply chains getting disrupted. There are conflicting reports in the media about European companies front-loading their exports to the US in order to reduce the impact of tariffs, while other companies in the US say they are not yet front-loading imports. In any case, how much can such a tactic help when these tariffs are going to last years, whenever they do come into effect.
How should companies and brands navigate 2025, if it turns out to be the real year of slowdown? Here are possible scenarios that might present themselves, forcing companies to make difficult choices.
Shift focus to services as growth engine, where possible
It is interesting that the Trump administration is planning tariff increases on goods; services have been spared it appears. Therefore, countries with a strong services sector and companies too that operate in the services sector might be tempted to press the accelerator on services, including in exports to the US and elsewhere.
US and UK enjoy a slight trade surplus in services, even if they have trade deficits in merchandise. By the way, I discovered that we in India too have a trade surplus in services even when we run large trade deficits in overall trade, because all of the deficit is in goods trade. I think this is thanks to our IT industry and software exports to the US and to the rest of the world. Therefore, after a few years of Indian tech companies reporting slowdown in global tech spends and demand, 2025 could be the year to focus on tech exports to the US and the entire world.
Going beyond the IT and tech sector, all our services sector industries and companies, from construction and engineering services to consulting, e-commerce, logistics, green energy could benefit from growth in 2025. Besides, there are travel and hospitality companies, financial services, education and healthcare that could all be potential areas of growth next year.
In fact, I think that depending on how wide-ranging and deep the US import tariff increases are, and for how long they remain in place, the world could see an increasing servicification of the economy, especially in countries that already have a strong services sector.
Plan price increases carefully across product range
Tariff increases, if they cascade into wider retaliatory tariff hikes, can cause import product prices to rise. This can force companies to raise prices, fuelling inflation. Inflation-induced economic slowdown would manifest itself as slowdown in consumer spending and companies will try and find ways to minimize this. Companies that produce a wide range of products ought to try and avoid raising prices on products and brands targeted at the most price-sensitive consumer segments who are at the lower end of the market. They will have to configure price increases across the entire range in such a way that they can manage to protect their toplines and bottomlines from too much damage.
Companies in industries where global supply chains are most dominant such as consumer electronics, semiconductors and automobiles could face huge disruptions perhaps even similar in intensity to those we saw soon after the pandemic. Businesses therefore ought to plan their imports and exports into the supply chain well in advance and perhaps maintain slightly higher inventory even if that comes at an additional cost.
I cannot overstate the importance of innovation and brands at a time like this. Companies ought to invest in R&D and product as well as process innovation and continue to invest more in sensible brand-building strategies for growth.
Avoid the short-term rush to digital technology
An economic slowdown can also force companies to invest in digital technology in a short-term rush to accelerate growth, the way many companies did during the pandemic. I would always urge companies to look at the longer-term when investing in technology, and focus instead on core product innovation as a way to build and maintain competitive advantage in the marketplace. Technology is at best a tool to help improve productivity and not a panacea for structural economic changes.
I must mention here that it was reported during the pandemic in India that large companies gained hugely at the expense of small businesses due to digitization. I am not sure if it was this or demonetization that decimated small businesses across the country. However, it now appears that many small businesses have grown on the back of the internet, e-commerce and quick-commerce in the past few years, a phenomenon called D2C, or direct-to-consumer. Either way, whether small or large business, investing in digital technology of any kind should only be undertaken keeping the long-term interests of the business in mind. Not as a way to cut costs in the wake of higher prices thanks to tariff hikes, or as a way to grow sales in a slowdown.
Stay focused on clean energy transition
The impetus to shift to clean energy might be affected in a year of economic slowdown. Governments themselves might slacken the pace of the clean energy transition owing to price pressures, reducing subsidies for fossil fuel energy and the resulting public protests that might follow, as well as entrenched special interest lobby groups that will resist the transition. This would be a grave error, as it will only raise the cost of the transition, the further down the road it gets pushed. Businesses and governments need to keep the focus on energy transition, emission reductions and clean technology and once again the emphasis ought to be on research and innovation.
Besides, as I wrote recently in my blog post on COP 29 and raising private capital for climate change, poorer developing countries need funds for climate adaptation and multilateral institutions’ loans and grants are not going to be adequate. Ideas on raising private capital for climate change ought to be accelerated in 2025, as the 2030 deadline looms near.
Automobile companies already seem to be in a flux regarding electric cars, especially those in western economies, while China still seems to be pushing ahead. I think the best way forward is for governments to subsidise a wide range of vehicle purchases and manufacture, from hybrids to plug-in EVs and all electric passenger vehicles, and companies ought to produce a wider range of them as well. It will slow down the transition to fully electric cars, but it’s still better than doing nothing or continuing to produce fossil-fuel-based cars with ICE technology. Here again, research and innovation are key to bringing down the costs of EV batteries, improving the range and lowering the overall costs of ownership of an electric passenger vehicle.
Oil and gas companies should themselves be shifting focus much more aggressively to renewables and new and clean energy options, whether hydrogen, nuclear or any other.
Think long-term before considering industry consolidation
In a year of economic slowdown, many companies might be tempted to consider inorganic growth options as a way to generate growth, improve competitiveness and productivity and scale up the business. This might be truer of industries that already face challenges to growth such as airlines, telecom, media companies, retail as well as my own industry of advertising and brand communications.
I would say that mergers and acquisitions should only be pursued after deliberating on the long-term advantages of it, as well as considering other options that might not have occurred to corporate leadership. While mergers certainly lead to scale, sometimes it can mean bulking up, only to be followed by a long period of attrition or retrenchment. This would be the case especially if the industry itself faces headwinds or an existential challenge, which might be better resolved through policy changes in order to free up any shackles, or through innovation and new business ideas. As it is, companies restructure their businesses every decade or so, in order to deal with issues such as productivity, competition, market conditions, etc.
What I would urge companies to seriously consider instead is consolidating their brands, both individual product/service brands and their corporate brands. Most companies including in the advertising and brand communications industry don’t still realise the full potential of their brands and how much growth these can generate. If done well, brands have the power to revitalise an organisation even in challenging times, to release new energy into product lines, to get consumers to consider them once again, and to enthuse employees in a company.
I am certainly not referring to the so-called rebranding of Jaguar that is receiving so much attention on social media these days, and not necessarily of the positive kind. I refused to comment on the Jaguar rebranding, as I have already shared my thoughts on brand strategy and communication ideas for Jaguar to relaunch itself on my blog. And I don’t think going all-electric is reason enough to rebrand; in fact, the recent Jaguar exercise is not rebranding, whatever else it might be attempting to be.
Another topic of conversation – or idle chatter – on LinkedIn is the merger of Omnicom and IPG, two large advertising and marketing conglomerates in the advertising and brand communications industry. Our industry does face an existential crisis, one that has been in the making for a couple of decades. I don’t see the great advantage of such mergers between large holding companies in terms of how it addresses any of the challenges that the industry faces. I think each of the conglomerates, Omnicom and IPG have individual companies that are brands, that have built their businesses and their reputation on the basis of their people and their work. It is time they harnessed the power of each of those individual companies and unleashed new streams of growth that at least attempt to tackle the serious industry challenges head-on. I have written before on my blog about agency brands and how little we do to grow them and capitalize on their strengths.
We are just weeks away from the start of the new year. One hopes it will not be the year of slowdown as has been anticipated for many years, and that companies and countries can find ways to maintain growth momentum. However, it is always wise to be prepared for any disruption or shocks that might come our way and plan to mitigate them. High inflation, weak consumer spending, tariff hikes and supply chain disruptions as well as slowing global trade are just a few of the factors we should expect going into the new year. Staying focused especially on innovation might just be the best to hope for in 2025 and in the years ahead.
Peripatetic Perch 