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Forecast 2009: Economic Slowdown to Continue

As we enter the new year there's no doubt business is facing the most challenging economic environment in decades.

Nov 08
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Businesses of all sizes will be hit by an increase in the cost of goods sold, driven by higher energy prices. Pricier fuel translates into higher costs for production and for transportation to end users, putting pressure on manufacturers, service businesses, and retailers alike. And on the buy side, consumers are shelling out cash for energy that they would otherwise spend on goods and services. "Home heating costs will be significantly higher this winter than they were last year," says Hoyt.

While the cost of oil has been trending down in recent months, the decline is not steep enough to make up for the sharp increases of 2008. "Even if prices go down further they are not expected to get to where they were earlier in the decade," says Koropeckyj. The reason is growth in demand from China and India. "There is more demand in general and less ability to drill for more oil easily at a low cost," she says. The price for a barrel of oil is expected to be $111 by the end of 2008 and $93 by the end of 2009.

High energy costs can affect profits. "The energy issue is becoming a bigger and bigger issue in our profit and loss statements and I don't know where the end is," says Smeltzer. "I think what will happen is, manufacturers and others will begin to migrate more frequently in search of lower energy costs just as they have done in the past for lower labor costs."

Weathering the Storm
How can you stay afloat in rough seas? Keep looking for ideas in technology and system improvements to get more done with fewer labor hours. This has been a winning tactic in recent times. Productivity increased by some 3.03 percent in 2008, according to Moody's That's an improvement over the 1.41 percent of 2007. And there's more good news ahead: Productivity growth is expected to increase by some 2.54 percent in 2009.

Want another profit strategy? Look to foreign markets. Moody's expects exports to increase by some 6.9 percent in 2009. While that represents a moderation over the 8.78 percent increase clocked in 2008, there is still room here for new players. "There is great opportunity in export-related capital goods," says Simson. "If you make a widget that Europeans can buy, I would get distribution in Europe as quickly as possible. This is a wonderful time for exports. It will be the only game in town for the next three years."

The good news for exporters is that the dollar, despite some recent strengthening, is expected to remain weak against the Euro in 2009. By the end of that year, Moody's predicts, it will take $1.39 to buy what a single euro can. That represents only a minor strengthening over the $1.52 clocked in 2008.

As you enter the new year, avoid panic and remember that you can't cut your way to profitability - you also have to create new initiatives that boost sales by offering customers real value. But plan those moves carefully, keeping one eye on the risky environment. "Be sure of your projects before you invest in them," says Simson. "Take a second look at everything. If you don't keep the shower curtain inside the tub, you may end up with water all over the floor."

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