How to Deal with the Economic Slowdown?

At a time of economic slowdown, companies must immediately review business models and identify opportunities arising from the creation of new market niches.

Tuesday, July 9, 2019

In Central America, during the first half of the year, at least four of the six economies reported declines in productive activity. The most dramatic case is that of Nicaragua, which in February recorded a 7% year-on-year drop in the Monthly Index of Economic Activity (MIEA), a situation reported since the political crisis began in April 2018.

Costa Rica is another of the economies whose level of economic activity has been showing a downward trend, recording in April only 1.6% year-on-year increase in the MIEA, down from 1.8% recorded in March. On the other hand, in Panama, economic activity reported a 2.9% year-on-year variation in March, after having closed February with an annual rate of 3.7%. In April, the situation did not improve and the rate returned to 2.9%.

The Salvadoran economy does not escape the reality of the region. In the first quarter of the year, a drop in the sales indicator was reported, and economic activity lost dynamism up to February, largely because of the adverse international environment and the uncertainty that prevailed at the local level in the first months of the year.

In this context, companies in the region must face different challenges to continue to succeed in a climate of economic decline.

Juan Bernárdez, director of strategy at White Rabbit - 4am/Saatchi & Saatchi, explained to that "... any slowdown should lead to an immediate review of the companies' business models. That's a very positive thing, because in an economy that is abundant in consumption and so on, many times companies have business models that are not very optimized or not very efficient, but money tends to hide some shortcomings. When this circulation disappears, many problems are exposed, people review much more the numbers, how the business is raised, which channels are performing more, which channels do not perform. It forces people to think more about the business and make decisions."

Carlos Badilla, of EY, said that "... the possibility of an even more widespread slowdown must be faced from the optimism. It is necessary for companies to analyze periods of low economic growth as a time of opportunity. In economically complicated times, new market niches are created, people have new needs, the prices of some goods will tend to fall, competition will have difficulties, etc. In times of low growth, or of economic recession, it is the moment in which the companies who take measures get advantages of their competitors'."

Among the recommendations to avoid errors in the midst of an uncertain economy are to quickly identify problems to act as soon as possible, not to apply discounts and promotions, because these measures may be unsustainable in extended decelerations, nor take decisions reactive to the actions of competition, among others.

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Costa Rican Economy: Signs of Recovery

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For the authorities of the Central Bank, the economy begins to show signs of recovery, because for four consecutive months the economic activity has registered a positive performance.

In June of this year, the Monthly Economic Activity Index (IMAE) began to show signs of recovery, recording a 1.2% year-on-year increase. In July and August, positive variations continued, with 1.4% and 1.7% increases reported, respectively.

No Information to Make Decisions

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In Nicaragua, the authorities have not published information on the Monthly Index of Economic Activity since February 2019, when the year-on-year fall was 7.5%, a situation that prevents businessmen from making decisions based on the real situation of the economy.

The latest report published by the Central Bank of Nicaragua states that in the second month of 2019 the IMAE in the country registered a 7.5% decrease compared to February 2018, mainly because of the behavior of the Hotels and Restaurants, and Fisheries and Aquaculture sectors.

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In Costa Rica, some toy businesses have decided not to raise prices during 2019, ally with banks and make special offers in order to increase sales in a context of economic slowdown.

According to reports from the Central Bank of Costa Rica (BCCR), in the second quarter of the year, GDP grew 1.4% year-on-year, below the 3% reported in the same period in 2018, which is associated with the evolution of domestic demand and external demand for the production of companies of the definitive regime.

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In Guatemala the economic activity reported the third month of the year a 2.7% year-on-year growth rate, mainly because of the behavior of the Transportation and Manufacturing Industries sector.

The 2.7% increase in economic activity reported by the Banco de Guatemala in the third month of the year, represents an acceleration since in February 2019 the variation was only 1.9%.

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