As we move further into 2023, there are growing concerns about the potential risk of a global recession. While the world economy has not yet fully recovered from the recession of 2022, several reports indicate that the recovery may not even happen and would not be sustainable in the long term. Businesses are still uncertain about the future. How can companies safeguard themselves? One definite answer to this is the adoption of artificial intelligence (AI) and autonomy. But first, let’s understand the recession and dive deeper into the impact of AI.
So what exactly is a recession?
A recession is commonly defined as a period of economic decline marked by two consecutive quarters of negative growth in the gross domestic product (GDP). However, some experts argue that a true recession also involves a significant increase in the unemployment rate alongside negative GDP figures. This inflationary environment often precedes recessions and further reduces consumer spending.
The term “recession” was officially coined by the National Bureau of Economic Research (NBER) Business Cycle Dating Committee. According to the committee, a recession is characterized by “a substantial decline in economic activity that spreads across the economy and lasts for several months.” While the committee does not follow strict rules to determine a recession, it places significant emphasis on personal income as a key indicator.
Why do recessions occur?
Understanding the causes of recessions has been a continuous focus of economic research, as several factors contribute to their occurrence. One major trigger is sudden changes in input prices, such as a surge in oil prices or a country’s decision to implement contractionary policies to address inflation. Additionally, issues in financial markets, such as significant increases in asset prices and excessive credit expansion, can also lead to recessions.
Predicting recessions is challenging due to their multiple potential causes. While certain indicators like asset prices, the unemployment rate, and consumer confidence can provide some predictive value, accurately forecasting recessions remains a formidable task for economists.
Digital transformation is the best strategy
It is no longer news that the right adoption of technology can save a company from going down in difficult times. We saw this happening during the Great Recession of 2007–2009, and then even during the Covid-19 pandemic. Companies that were quick to adapt to technology were the ones who managed to stay afloat and accelerate their profitability, both during and after the downturn. They were able to prioritize early cost restructuring, based on their adoption of emerging digital solutions. Since then, it has been established that to stay ahead of the curve and be future-ready, digital transformation is the best strategy.
Digital transformation can redefine the way businesses operate, leveraging technology to streamline operations, enhance efficiency, and drive innovation. In a survey conducted by CNBC’s Technology Executive Council, AI, machine learning, robotics, and software-defined security are identified as the key priorities in 2023. By embracing these technologies, companies can position themselves for sustainable success, and build the resilience necessary to navigate future economic uncertainties.
Impact of global recession on India
As per RBI, unlike the global economy, India is not likely to experience a slowdown and will continue maintaining its growth rate achieved in 2022-23. The Indian economy is intrinsically better positioned than many parts of the world, while heading into a challenging year ahead. It is also mainly because of its resilience and reliance on domestic drivers.
However, there is a chance that India may still be affected by the global economic downturn to some extent. According to Moody’s analytics report titled APAC Outlook: A Coming Downshift, India may experience slower growth in 2023.
Role of AI
AI has created a special space for itself across industries, and already impacts the world in many ways.
Post-pandemic, companies have become predictive and dynamic in their decision-making to achieve operational resilience. Therefore, to become flexible, many businesses started to conserve cash, slowing their growth plans and preparing for survival, given that the future could be challenging.
In such scenarios, AI can make a meaningful impact by reducing hidden costs, improving productivity, and finding new revenue streams. Let us understand the two primary aspects of AI for businesses that can support growth during an economic downturn.
Automate workflows and processes
One of the key strategies to navigate a recession is to manage resources efficiently and handle costs effectively. However, many companies need help managing time-consuming tasks that can impede the normal flow of business operations, such as document review, invoice reconciliation, and payment processing.
To address this issue, automating repetitive and mundane tasks, such as data entry and document processing, can lead to significant cost savings for a business. It includes reducing overhead costs and minimizing costly human errors caused by repetitive manual work.
For instance, in the manufacturing and automobile industries, quality and inspection-related issues become a central focus during times of recession. It becomes difficult to allocate resources to manage every aspect of the manufacturing process. Hence, smart solutions, such as engine defect detection, using visual inspection, AI comes into play. They can help to remedy quality issues with maximum accuracy.
By leveraging AI and predictive maintenance, anomaly detection, can also be integrated into the process. Furthermore, warehouse inventory count automation can be implemented to accelerate operations, while reducing the risk of human error.
Allows businesses to protect their competitive advantage
As stated by Reid Hoffman, the co-founder of LinkedIn, in today’s competitive landscape, businesses must incorporate AI into their strategies to secure a competitive advantage, either presently or in the future.
Rather than being a cost centre, technology is now a business driver—and AI tools can be a sustainable differentiator that sets companies apart. Why? Rather than replacing the work of humans, it enhances them. Knowledge workers spend 30 percent of their time searching for the right information. When data is complex, unstructured, and large in scale, this search process is resource-intensive and time-consuming. This makes it hard for organizations to scale since additional resources need to be added to earn additional income.
With tools like AI, employees can free up time for more high-value work, improving the output and quality of the business overall.
Increase revenue efficiency
AI will eventually be recognized as an essential technology for any industry to stay competitive, even during an economic downturn. According to Accenture, AI can potentially increase profitability rates by an average of 38 percent by 2035 and generate an additional USD 14 trillion in economic growth across 16 industries and 12 economies.
If businesses are experiencing decreased revenue and profitability due to reduced demand for their products or services during a recession, AI can potentially help increase revenue efficiency. This is possible by automating certain tasks and processes in an organization. AI has the ability to comb through multiple data points from customers, the company, and competitors to provide valuable insight into patterns and vulnerabilities within a customer base, identifying customers who are likely to leave, and improving overall customer retention. For example, the tech giant Amazon uses AI to drive dynamic pricing – reducing prices to elicit more sales when needed and increasing prices when demand is high.
Algorithms can also reveal patterns in buyer behaviour, sales performance, and external conditions, which increase sales revenue, while eliminating uncertainty in the sales process. This assists the sales leader in determining which tactics work best at each touchpoint.
AI to help thrive, not just survive
Several reports indicate a potential risk of a global recession in 2023. While it is impossible to predict the future with certainty, it is essential to be aware of these risks and take measures to mitigate them. With AI, businesses can navigate closely any market environment by increasing accuracy, productivity, and growth at a lower cost. It reduces customer issues and improves expense management.
As a result, investing in new technology during a downturn may seem daunting, but the medium to long-term benefits far outweigh one-time costs.