Examining the Impact of the Recession

JH
John Honovich
•Published Dec 01, 2008 01:10 AM
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With a global recession no longer in doubt, two fundamental issues will shape the video surveillance business:

  • How significantly the global economy will contract
  • How strong will the post-recession economy be

This examination will focus on the US, European Union and Japan - who combined are over 66% of the global economy - and who all are entering a significant recession.

I project that these countries will experience:
  • 6% - 10% reduction in economic growth between Oct 08 and Sept 09
  • Slow growth for a number of years in the next decade (2010-)

These economic trends will cause the video surveillance industry to:
  • Reduce growth rates by 12% to 20% in the next year
  • Reduce industry long term growth rates significantly

Detailed examination of these drivers and recommendations for key steps to thrive in this environment are provided in my 2009 Video Surveillance Industry Guide.

The following overviews the issues involved:

Weakening Economic Results

The US economy already started to contract in Q3 2008 [link no longer available] (July - September).  This contraction is especially alarming as it came almost entirely prior to the financial crisis. 

It is extremely likely that the US economy's GDP will fall dramatically in Q4 (October - December). The evidence is everywhere - with layoffs, housing prices continue to fall, the imminent collapse of the auto companies, the decline in stock prices over the last few months, etc.  The US GDP could easily fall 2% - 4% in Q4 2009.

With housing prices still dropping, consumer spending continuing to shrink and the balance sheets of companies worsening, it is likely that the economy will continue to contract significantly through the first part of next year. All of this puts huge downward pressure on economic activity.

Companies Impacted

Expect numerous video surveillance companies to be impacted over the next year – with layoffs becoming common and closures no longer being a surprise. While companies are trying to avoid such measures and hope for the best, widespread poor 4th quarter sales results will increasingly make cuts inevitable.

Consumer Spending Fueled by Debt 

The era of consumer spending fueled by huge debt and massive increases in housing prices looks to be over for years.  Given that this fueled GDP growth for the past decade (or more), the reversal of this trend will create an economic environment where GDP growth (even if positive) will be weak.

Even after the short term rapid contraction is over, the recovery will be weak - eliminating a key driver for rapidly expanding capital equipment such as video surveillance.

Impact on Video Surveillance

None of this is an attack on video surveillance. However, video surveillance business must change their fundamental economic assumptions to match the change in the world's economy.