Talk of austerity and recession creates concern in the market

Published 11/10 at 10:07

When the winds of the recession begin to blow, concern grows among entrepreneurs, suppliers and employees alike. But is the concern always justified, at least to such an extent that it affects the business? Recession is not a new invention, but something that most people in the industry have experienced several times before. The recession is there to be fought. PDi’s editor in chief shares his thoughts on the subject.

I

was asked by a reader if I could comment on how I feel we should handle the impending recession. The reader thought that I have been around for a while in this industry and must have experienced several recessions. That's right, even though I am just a journalist writing about the industry and have never practically been working within demolition, concrete cutting, recycling, etc. But since I started working with this industry at the end of the 1980s, I have experienced a couple of serious recessions so I think our reader came up with a good suggestion.

So here are my views on how we should deal with the situation. For a number of years, the economy in Europe has overall run like a train. Particularly in my home country, Sweden. Inflation has been at the right level and interest rates extremely low, which has greatly benefited the economy for both companies and employees. This situation in the economy has not only affected the European market but many other markets.

 

The pandemic years not as bad as feared

When the pandemic broke out in the spring of 2020, everyone was on edge and it was feared that we would be hit hard financially. And sure, the market plunged in the first few months but recovered quite quickly, even the stock market. Government support programmes helped the companies. It was actually the hospitality industry that was the big loser during the pandemic. In addition, when traveling was eliminated and other costs were reduced, many business owners were able to state that the pandemic years were actually not as bad as they thought, but rather good. We also learned a new way of communicating through webinars, ‘Zoom’ and ‘Teams’ meetings. The sectors of demolition, concrete cutting, concrete floor grinding and polishing were able to work effectively and were not as badly affected by the spread of infection, at least not as other workplaces.

But then came 2022. Russia invaded Ukraine and a full scale war broke out that shook the whole world. The war itself was the starting point for other economic changes that increased and worsened the market economic situation. Inflation began to increase dramatically in most countries. There was a shortage of goods and energy prices skyrocketed or energy deliveries failed. The pandemic had already taught us to live with shortages of components and long delivery times. Many negative factors came together and now we are on the brink of a new recession and we do not yet know when it will end. When things like this happen, it's easy to ‘paint the devil on the wall’ and make the situation much worse than it is. If it goes really far, the market will be paralysed and that is not good for anyone.

 

We have tackled recessions before

That we are heading into a slump, or we can call it a recession if you like, there is no doubt. We have been spared from this for many years so it is not entirely surprising that it is now happening. For many years, we have experienced a sharp increase in the price of, for example, housing. In the big cities, prices have more or less tripled for villas and condominiums. Wages have increased sharply and those who traded in stocks have been able to see their stock value increase by several hundred percent. The drop is quite high, as are the gains in welfare.

What I want to say with this article, and now I'm talking about the global industry PDi has covered since 2000, and our Swedish title, Professional Demolition, since the early 1990s, is that it's easy to make a ‘rooster out of a feather’. Since I started working in the demolition industry comprising of demolition, recycling, concrete cutting, hydrodemolition, grinding and polishing of concrete floors and more, I have experienced several ups and downs in the market. What we are experiencing now is far from the worst of previous recessions. I particularly remember the 1980s when housing values skyrocketed and there was a lot of construction. Since 1990, everything hit the roof. The demand was all of a sudden non-existent, everything was overvalued and disaster became a fact. Interest rates skyrocketed and many had to leave their homes. If you did experience personal bankruptcy, you were often left with high loans on properties that had more than halved in value. We are definitely not there today.

Even today though prices have risen dramatically, many European countries, the United States and several other countries outside Europe, have a very large lack of housing and that is a very important driving force for the economy. There is also the need for large levels of renovation of the infrastructure. Thousands of motorways, bridges and viaducts in Europe and the United States are in major need of renovation to mention but some examples. If there is still a need to build, there are always ways to carry out the construction, even though interest rates are now starting to rise.

I believe that new construction projects will decrease for a while which will be replaced by renovation and extension projects. The market finds its way, believe me. But new construction will continue to be important, albeit at a slightly lower level. If we get rid of inflation in say a year or so, everything will turn around again quite quickly is my belief. Maybe not to levels we got used to living with, but still to levels that are acceptable.

 

The conditions

are better now before this recession

The severe recession of the 1990s taught us a lot and it would take until the late 1990s before it started to turn upwards again. Then came the next ‘bang’ in 2008 in connection with the Lehman crash in the USA which acted as the trigger. However, the recovery after 2008 came much faster than during the 1990s and the economy increased and strengthened strongly year after year. This has now led us to 2022 where we face the next swing in the economy, but the conditions for many countries are, as I said, much better now, as we still have a major need for new housing.

However, those who work in construction generally have a very good ability to change and adapt to the current situation when it presents itself. However, this may not apply to all companies, but certainly to the vast majority. It all depends on the conditions for the companies. Of course, if the economy was already strained during the boom, a recession could be the final straw. But most demolition and concrete cutting contractors have a lot of experience under their belt and probably don't need to worry unnecessarily about missed assignments. So keep the ‘good spirit up’ as that is the best way of conquering the situation.

Jan Hermansson
Editor-in-Chief, PDi Magazine

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