Finance executives expect global recession in next 12 months

Seventy percent of finance executives anticipate a recession within the next 12 months, with 24% expecting one before the end of the calendar year, according to a recent report from AlixPartners. The consulting firm in May 2022 surveyed over 600 senior experts from investment banks, lenders, financial advisory firms, law firms, and corporations globally.

Respondents from the Americas region were most pessimistic, with 87% projecting a recession in the next 12 months. Over half (57%) of global respondents said the likelihood of an economic recession in the US is 50% or more in the next 12 months.

The downturn will be inflation-led, with 97% predicting inflation to be a major driver of economic stress.

“While no one can pick the precise timing, our respondents tell us we are heading for a global recession and another intense period of restructuring. Companies unable to refinance because new funding is not available or because it's too expensive, are going to be at the forefront of this,” Jim Mesterharm, global co-lead of the AlixPartners’ turnaround and restructuring services practice, said.

Globally, respondents tagged automotive (18%), manufacturing (17%), retail (12%), and commercial real estate (11%) as the sectors most likely to face distress in 2022. 

More than a third of respondents believe the majority of distressed firms that tapped credit markets for financing in 2021 will require more in the next three years. However, finance professionals say the availability of capital has decreased (44%) or remained flat (43%) compared to 2021, and terms have grown more restrictive (52%).

ESG compliance is another hurdle, with 69% saying access to financing depends on it.

“Business leaders must brace for further uncertainty in the realm of geopolitics, interest rates, and inflation. Growth can no longer be fuelled by cheap money, and business models have to be supported by profits. The winners will be those leadership teams who can transform their businesses with pace, agility, foresight, and an action-oriented point of view to navigate the choppy waters ahead,” Joff Mitchell, global co-lead of the AlixPartners’ turnaround and restructuring services practice, said.

Respondents believe recession-driven M&A activity will increase, with 76% expecting M&A transactions involving distressed assets to jump and 12% expecting such transactions to reach a record high.

As in previous recession periods, companies with the appropriate capital structure can plan to pick up weaker players via M&A for discount prices. On the flip side, some corporations and private equity firms are reassessing geographic exposure (i.e. Russia, China) and pruning portfolios and corporate structures to focus on core businesses that drive growth amid disruption.

“If a ‘turnaround mindset’ proved to be a defining factor in establishing a competitive edge during the height of the pandemic, it must now be locked in to effectively tackle a new and even bigger wave of market volatility,” Mitchell added.