A Recession and the Tech Sector

I am not an economist, but whether and when a recession hits can have a significant impact on our business as any tech business. We are in the midst of strategic planning at Alfresco and the appetite for companies to invest in new, innovation-led Web 2.0 vs. cost-efficiency initiatives can be affected by where we are in the economic cycle.

I am of the opinion that the current credit crunch will not cause a recession. Why? Economists here in the UK point to general health in the corporate sector and similarities to blips in the collapse of Ruble and the LTCH hedge fund in 1998, only leading to another two years of growth. Likewise, the market crashes of 1987 turned around and only fell apart two years later. Besides, as in the those instances, recessions do not happen during presidential election years. Last time there was a recession during an election year was 1960 and you have to go back to the 1920s to find another. The Fed and other monetary agencies will step in and fix the problem.

However, my colleague Matt Asay circulated the following article by Paul Kedrosky:

A story in tonight's WSJ has economists upping the likelihood of a U.S. recession in 2008. Three-quarters of the 52 economists surveyed put the odds at or above 30%, but the range was gigantic from 5% to 90%. I put only teensy faith in what "up/down" economists -- I think that's Paul Krugman's phrase for market bingo-callers with no capital at risk -- have to say. That said, the likelihood of a U.S. recession is growing, and, credit crisis or no credit crisis, it's arguably somewhat overdue, with the current U.S. expansion now at the end of its sixth year. Either way, it's worth scanning a real market for the probability of a U.S. recession in 2008, and the one I use at Intrade says we are almost up to 60%.

That is still a minority chance of recession, but one that is worth planning for. The horrible state of finances of the US government and US consumers and the trade gap with the rest of the world is definitely something to worry about. The poor state of the dollar leaves little latitude to fix things.

I just hope I am right that there is no recession.