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A war recession is not a an economic recession

It doesn’t go unnoticed that the war between Ukraine and Russia has a major impact on western societies. Up to the night before ‘Prinsjesdag’, our cabinet worked hard on finding the right measures to minimalize the financial damage the war is causing. The western world, especially Europe, hasn’t faced a threat like this since World War II. During these decades, our society, among which politicians and policy makers, may have lost sight of an adequate approach to a war economy. Martin Wolf, Chief Economics Commentator of the Financial Times, held a fiery speech on the 3rd of September at the FT Weekend Festival in London. The core of his message: western societies are being confronted by the effects of a war economy, not by those of an ordinary economic recession. Therefore, the measures should be adapted to the economy that we’re in right now. According to him, there’s no economic recession. The labor markets are still tight with low unemployment rates, the inflation and interest rates have been low until the war and the worldwide logistics systems weren’t yet recovered from the covid pandemic. In conclusion, we’re not dealing with an ordinary economic recession. The prices of energy and other raw materials will eventually return to ‘normal’ levels. Goldman Sachs recently published their expectation on the global gas prices. They believe these rates will have halved from the current levels this winter. Some essential raw materials that are mostly mined and refined in countries such as Russia, China and India, will stay scarce and therefore expensive for a while to come. Again, due to the war. Some examples of these raw materials are Palladium, used for the production of electronic chips and Neon, essential for the making of laser systems. It does seem like the western governments are, even though somewhat slow, taking adequate measures. Although it remains to be seen if the recently appointed government in the UK is to take effective measures. The right measures will help households, SME- entrepreneurs and big companies to survive this period of war financially. The labor markets are tight and will remain so, especially when the war will be behind us. The availability of resources won’t improve immediately after the war. Because of the rising interest rate, funds have become more expensive. It is expected that the interest rate will eventually drop to a normal 2 to 2,5 percent after the war has ended. Now comes the biggest challenge for various businesses: finding a way between adapting the cost levels to a reduced demand, while at the same time investing in people and resources to prepare for responding successfully when the demand picks up again. Businesses who now make the bold choises to get through this war economy, will strengthen their position in the labor market. A smart decision would be using this time to prepare of an improving economy after the war. Now is the time to invest in the best people and resources, especially in a strong leadership team. When the war is over, finding these people will be much harder because the competition might already be ahead of you. Underneath this letter, you will find 3 articles by Martin wolf, which I have mentioned before. These articles are behind a payroll of the FT, I send you the links regardless. Read them as thoroughly as you may and feel welcome to reach out to me to talk about your team, in particular your key players. Warm regards, Aegeus


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