A global recession is something engineering and construction firms have not seen for quite some time – the “Great Recession” of 2007-09 was well over a decade ago. While current management teams did deal with the pandemic and its related recession-like issues, and in general did so quite well (overall global engineering and construction revenues rose by over 6% from 2019-2021) the question to ask is whether your firm is prepared for a recession which is characterized by a slower longer term slow economy where market growth declines significantly?

Despite some ups and downs (particularly in oil and gas) the engineering and construction market has enjoyed relatively robust growth since 2010. Total global evenues have grown from $1.4 trillion to nearly $2.5 trillion – an average annual growth rate of nearly 6%. While oil and gas has declined significantly, growth in markets such as transportation and buildings has taken up the slack, and the power market, led by renewables, has resumed growth as well, up by over 6% annually since 2018.

What is a recession? In basic terms, a recession is decreases in economic activity for an extended period, marked by GDP contraction, higher unemployment rates and lower spending and decreases in personal income. AA recession is also characterized by high inflation – as prices rise, people have less money to spend on goods and services and they adjust their habits, which in the aggregate, can slow down economic growth throughout the economy, and end up leading to higher unemployment and lower demand and higher costs.

Aside from two consecutive quarters of negative GDP growth in the US– this is not the case -yet. However, the trends are unmistakable.

These trends may end up being worse – the International Monetary Fund (IMF) recently cut its global growth forecast to 27% – down from 3.9% in January and sees a 25% probability that it will be less than 2%, and noted that 2023 should be the worst year economically since 2009. The EU will see the most significant downturn in 2023, with Germany, Italy, Russia and possibly the UK each having a shrinking economy.

By comparison, during the recession of 2007-2009:

  • Overall US GDP fell by 4.3% from 2007-2009, with unemployment rising from 5% to 10%; UK GDP fell by over 15%, Canada by 12% and the EU by 2% while China actually grew significantly.
  • Oil prices rose from $134/barrel in Oct 2007 to $ 189/barrel in June 2008 before falling to $69 barrel in April of 2009,. This compare to $ 79 now.
  • US engineering revenues declined by 15% from 2008-2010 – and didn’t recover to their 2008 peak until 2015!
  • The US contracting market shrank by over 20% -and didn’t exceed its 2008 peak until 2015
  • Globally the engineering market fell by 5% and didn’t exceed its 2008 peak until 2011 – this growth was primarily due to 10%+ annual growth in Asia.
  • The industry falloff showed no favoritism when inflicting pain on engineering firms. 70.5% of US engineering firms reported a decline in design revenue,
  • Some markets slowed disproportionately during a downturn. For example, the Buildings market shrank by over 20% and didn’t recover until 2016; environmental fell by 17% and didn’t fully recover until 2019. How will your markets do?

Although at this time it doesn’t appear that the looming recession will be as drastic as the 2007-09 one – it could be. With an ongoing war, looming economic slowdowns across the globe and significantly higher inflation (only 3.8% in 2008, for example), the outlook remains unclear

Preparing for a recession is essential for any business. Here are some additional examples of how to prepare for a recession and what to look for:

  1. Diversify your revenue streams: Having a diversified revenue stream can help mitigate the impact of a recession. For example, if a business relies heavily on one sector, such as oil and gas, they may be more vulnerable during a downturn. Diversifying your revenue streams can help your business maintain some level of income, even if one sector experiences a significant decline.
  2. Cut expenses: During a recession, businesses need to be able to weather the storm financially. Cutting unnecessary expenses can help you free up cash flow to help you stay afloat during tough times. This can include renegotiating contracts with suppliers, reducing travel expenses, and delaying capital expenditures.
  3. Manage your debt: During a recession, managing your debt becomes even more critical. Businesses should try to reduce their debt load by paying off high-interest loans, renegotiating payment terms, and consolidating debt where possible.
  4. Monitor your cash flow: Businesses need to keep a close eye on their cash flow during a recession. Cash flow can be a matter of survival, especially during a downturn. Regularly monitoring cash flow can help identify potential cash flow issues before they become a crisis.
  5. Keep a close eye on the market: Keeping a close eye on the market is essential during a recession. This can help you identify potential opportunities, such as acquiring distressed assets at a discount, and help you adjust your strategy to respond to changing market conditions.
  6. Focus on your customers: During a recession, customer loyalty becomes even more critical. Businesses should focus on building strong relationships with their customers and providing them with exceptional service. This can help you retain customers and even attract new ones during tough times.
  7. Prepare for the recovery: While a recession can be a challenging time, it can also be an opportunity to position your business for growth once the economy recovers. Businesses should develop a plan to prepare for the recovery and be ready to take advantage of new opportunities when they arise.

In summary, while the looming recession may not be as drastic as the one in 2007-09, businesses should still take steps to prepare for a potential downturn. This includes diversifying revenue streams, cutting expenses, managing debt, monitoring cash flow, keeping a close eye on the market, focusing on customers, and preparing for the recovery.