The World Economic Forum warned that we were ‘perilously close’ to global economic recession as we started 2023. However, as we begin 2024, the World Bank seems a little more optimistic, with analysts predicting ‘the US recession they’d been forecasting for two years isn’t coming anymore’ (Reuters).
However, the forecasts for the UK and Canada are not as hopeful. The only thing that is certain across all territories is uncertainty. In these times, it is vital to have a robust cash management strategy in place. Cash always remains a constant in times of economic uncertainty, and so ensuring that your branch and ATM network is adaptable to changing customer demand is key…
While employment remains strong in the US and inflation has started to ease, interest rates remain the highest they have been in 22 years and oil prices stay elevated. While the chances of a recession have dropped due to stronger than expected growth, with GDP increasing to 4.9% in the third quarter of 2023 (BEA), companies and investors remain wary about the progress to be made over the next financial year, warning that consumer spending and investing will be ‘sluggish’.
Progress with dampening inflation in the US has not been as expected. Core inflation rose in November due to rising energy and oil prices, and headline inflation decreased to 3.8% in December from 4% in November (Financial Times). While some say rates may drop in March, the incremental progress made on inflation suggests that rate cuts may be held off until later in the year.
A starker image can be seen in Canada, with the economy struggling to adapt to the steep incline of the record 10 back-to-back rate increases from March 2022 through to July 2023. According to Reuters, GDP for September 2023 was revised downward to zero from an initial report of 0.1%, and November is likely up 0.1% due to manufacturing growth but was down overall in the third quarter.
A mild recession is predicted by some, with the Bank of Canada predicted to hold rates where they are for the time being, with cuts expected later in 2024 to support economic growth. Positive progress has been made with inflation, which is currently at 3.1%, but isn’t expected to lower to the target rate of 2% until the end of 2025.
The picture seems murkier across the Atlantic in the UK. Official figures from the House of Commons show that GDP is estimated to have fallen by 0.2% in September-November 2023 compared to the previous three-month period (June-August), despite growing 0.3% in November compared to October. Growth in the second quarter (April-June) was also revised down, from 0.2% to zero.
Figures from the Bank of England show that inflation dropped from 10% to 3.9% towards the end of 2023. However, a surprise increase in inflation hit in December, taking inflation back up to 4% (Forbes). Rates were thought to be held where they are for the time being, with rate cuts coming later in 2024 to support economic growth – but with inflation rising, there may be potential for rate increases on the horizon.
Cash Management Strategy in 2024
Both the UK and Canada are skirting recession, but even if they don’t fall into the official definition, they are still experiencing low or no economic growth on a month-on-month basis. Although the US may not be experiencing a downturn, it is certainly experiencing difficulties. The cost of living has risen, and though inflation is falling, we can clearly see those predictions of lagging customer spending and contracting GDPs reflecting three struggling economies, and the very real potential of rates staying higher for longer.
This represents a challenging time for cash management strategies heading into 2024. As rates are likely to stay higher for longer than expected the cost of managing cash is likely to remain high, and so ensuring that your cash management strategy is optimal is imperative.
Customer payment habits are also likely to change with people relying on cash more in times of hardship. Indeed, they already are. In the UK, shopping with cash grew for the first time in 10 years in 2022, comprising 19% of all transactions according to UK Finance.
Another challenge for financial institutions lies in operational agility and ensuring your network is optimally forecast to meet changing demands. The COVID-19 pandemic demonstrated the flaws of operating static solutions which must be turned on and off, as they continue to run on outdated data. Ensuring a dynamic forecasting solution is in place which considers fluctuating demand profiles across your network, iterating through a roster of algorithms to ensure your sites are stocked with the optimal amount of cash is vital in uncertain times. You can read about our dynamic cash forecasting solution here.
Furthermore, as the rollout of improved ATM functionality, such as recyclers, becomes more prevalent, transaction migration from the branch to the ATM will increase the burden of cash and ATM reconciliation on cash operations. As the nature of cash and ATM reconciliation tends to be more manual than other forms of reconciliation due to its complexities, the workload bloats teams and drains resources. However, Libra, CMS Analytics’ advanced auto-reconciliation tool has an auto-reconciliation rate of up to 95% and has been made specifically to streamline cash & ATM reconciliation processes, increase accuracy and save cash operation costs. Find out more here.