Page 5: Recovery
The term 'green shoots' is used to refer to the first signs of economic recovery. During a recession, businesses and consumers lose confidence. 'Green shoots' appear when consumers start to spend a little bit more. Businesses respond perhaps after a short time lag by producing more goods and services. They will start to invest in new machinery. More jobs will be created or reinstated. Unemployment will start to fall.
The cause of recovery may be due to government actions such as reducing taxes, increasing investment in the economy or perhaps by improving infrastructure.
For example, in 2008 the government temporarily reduced VAT from 17.5% to 15% to encourage greater consumer spending. Increased investment, either from within the UK or from other countries, can also prompt recovery. A rising confidence in the economy leads to increased business activity and more spending by consumers.
Although some uncertainty will undoubtedly remain, businesses are more likely to consider investment at this time. During the downturn, a company may develop new ideas but be reluctant to put them into practice because of the falling level of expenditure in the economy. Once the recovery starts, it is time to try out these ideas.
Management accountants can provide an assessment of what the expected returns might be on these new ideas. For example, they can use investment appraisal tools to:
- determine how long it will take to pay back the cost of setting up a new production line
- analyse which opportunities will yield the best results
- consider which ideas have most strategic long-term value.
Rhiannon Rymer is a CIMA-qualified Strategy Analyst at Lloyds TSB. Her work focuses on evaluating data to assess where income will come from now and in the future. She looks for opportunities during all stages of the business cycle, including recessions, to identify where Lloyds TSB has the potential to grow income.