The current macroeconomic backdrop is far from a fairy tale. With war raging in Ukraine, and major economies tipping into recession, treasurers are adapting to a world of rising interest rates and inflation, as well as spiralling energy and commodities costs. Meanwhile, supply chain disruptions, combined with growing ESG expectations, have thrust working capital efficiency back into the spotlight as corporates look to ensure they are in the best possible shape for the future.
Not too hot. Not too cold. But just right. This is how Goldilocks famously likes to take her porridge, according to a 19th-century British fairy tale. It’s also the basis for a perfect economic storm.
A Goldilocks economy is one that isn’t ‘too hot’ in terms of growth, as this could lead to inflation. Neither is it ‘too cold’ as this could lead to recession and high unemployment rates. Rather it is an economy that exhibits growth; but not too much. And these ‘just right’ economic conditions became something of a regular feature in the decade prior to the Covid-19 pandemic.
As Christian Keller, Head of Economics Research, Barclays Investment Bank, explains: “After the global financial crisis of 2008, there was a prolonged period of significant policy stimulus, driving interest rates down and asset prices up, all while inflation remained negligible. The Goldilocks economy, or certainly a form of it, became more or less the norm – until the health crisis hit. Soon, lockdowns across the world resulted in a significant shock to the global economy.”