The Wizard of Oz, as I’m sure you’re aware, is a story about a girl who is knocked unconscious during a tornado and wakes up in a strange land. In one scene, Dorothy finds herself walking through the forest with the Cowardly Lion, the Tin Man, and Scarecrow. They are afraid of this “dark and creepy place,” and soon imagine themselves surrounded by lions, and tigers, and bears, Oh my!
It’s funny how the mind can play tricks on us when we’re caught in a storm and wake up to a new world where nothing seems familiar. Only, in this version of the Wizard of Oz, we are the ones riddled with fear, but not about being attacked. We’re afraid of the “TIONS.”
Recession, Inflation, and Stagflation, Oh My!
Okay, technically recession is a SION, but let’s not quibble. “The storm” began with Covid and has been made worse by the war in Ukraine. The entire world has experienced the effects of both threats, -whether directly or indirectly – and it doesn’t look like any of us will be returning to business as usual any time soon.
Before we talk about how this may affect the choices that businesses make about their cybersecurity, let’s dive into a brief description of the three TIONS.
According to excerpts from an article by Forbes, they wrote, “A recession is an economic downturn, typically defined as two consecutive quarters of declining gross domestic product (GDP) growth. Generally, when the economy shrinks for six months or more, it’s considered a recession.
During a recession, unemployment rates increase, wages may stagnate and people usually have less money to spend. Those factors mean there is less demand for goods and services, which can further hurt the economy.
What Causes a Recession?
Recessions are caused by the following developments:
Decreased consumer spending. When people have less money to spend, they purchase fewer goods and services. This decreased demand can lead to businesses reducing production, which leads to layoffs and increased unemployment.
Increased business costs. Businesses may be forced to raise prices to offset higher costs, such as the cost of materials or labor. This can lead to inflation and decreased consumer spending.
Reduced lending. When banks are reluctant to lend money, it can impact businesses’ ability to expand or invest in new projects. This reduced lending can lead to a decrease in economic growth.
Stock market declines. A decrease in stock prices can contribute to a recessionary environment by reducing the wealth of individuals and businesses. This can lead to less spending and investment, further slowing the economy.
Recessions are normally pretty brief. On average, recessions last for about 10 months. Then the economy usually recovers and even exceeds where it was before the economic decline began.”
Forbes described Inflation this way, “Inflation is a measure of the gradual, broad increase in prices throughout the economy. It’s usually expressed as a percentage, which represents the rate at which the costs of goods and services have increased over the last year.
A minimal level of inflation is expected and even encouraged. But it becomes a problem if the inflation rate gets too high. In the U.S., a common measure of inflation is the consumer price index (CPI), a basket of items consumers often purchase. This basket includes food, housing, clothing, transportation, and health care.
Excessive inflation can severely impact the economy. From grocery store prices to gas for your car, high inflation means everyday essentials are becoming much more expensive.
As prices rise, consumers have less money to spend on goods and services. People adjust their financial habits, which in the aggregate, can slow down economic growth throughout the economy, potentially leading to higher unemployment. Businesses may see lower demand and higher costs.
What Causes Inflation?
There are several factors:
Cost-push inflation. This happens when the prices for the key inputs of goods and service rise, such as raw materials and labor. When companies have to pay much more for inputs, they pass on the costs to consumers in the form of higher prices.
Demand-pull inflation. When there is too much money and demand chasing too few goods, it can push up inflation. It can be caused by increased government spending or a tax cut that puts more money into people’s pockets. When there is more demand for goods than supply, prices will go up.
Inflation expectations. Anticipating future price gains can lead people and businesses to expect higher inflation. As a result, workers may ask for higher wages to offset the increased cost of living—but this loop may create a self-fulfilling prophecy: Fears about inflation deepen the problem.”
Inflation vs. Recession: Which Is Worse?
This is Forbes’ conclusion, “Inflation and recessions are very different economic phenomena, but they are intrinsically linked.
High inflation rates can indicate an impending recession, as businesses react to higher costs by reducing production and increasing prices. And if the Federal Reserve takes action in the form of more rate hikes to curb rising inflation, there’s a risk that the move could help trigger a recession.
According to the Economic Policy Institute, economists’ opinions vary on which is worse for an economy, a recession or rising inflation. One common argument is that inflation is worse than a recession because it impacts everyone. By contrast, a recession—and the associated job losses that come with it—may impact a smaller number of people.
However, opponents of that school say recessions reduce the income of everyone throughout the economy. With unemployment during a recession, there is also a loss of productive resources, particularly labor, causing the economy to produce less.
It can be difficult to decide which is worse for the economy: inflation or recession. Both negatively impact different aspects of economic life, such as consumer spending and lending.
But by understanding the differences between these two conditions to make informed decisions about how to manage your finances and investment portfolio during times of rising inflation or a recession.”
This term was popular in the 70s, but it’s made a roaring comeback recently. In a different article by Forbes, they wrote, “Stagflation is a period of stagnant economic growth accompanied by persistently high inflation and a sharp rise in unemployment.
In its June 2022 global economic forecast, the World Bank warned that the risk of stagflation has risen due to a “sharp slowdown” in global economic growth coinciding with a “steep” rise in the rate of inflation to multi-decade highs.
The term stagflation combines the words “stagnant” and “inflation.” Its first use is attributed to a British politician in the 1960s.
The World Bank notes in its report that there’s no precise definition. Stagflation refers to an economy characterized by high inflation, low economic growth, and high unemployment.
Typically, when prices are increasing rapidly, demand exceeds supply and the economy is growing—so-called demand-pull inflation—which means people have the income to spend more money on goods and services, says Rob Haworth, senior investment strategist at U.S. Bank.
However, during periods of stagflation, those dynamics are flipped—there’s a lack of supply pushing prices higher, but consumers don’t have more money to spend, adds Haworth. “It’s a challenging time for consumers with prices rising but incomes flat or stagnant.”
Because bouts of stagflation are so rare, very unusual events must occur to create a backdrop whereby the economy is “dead in the water,” and there’s high inflation, notes Brad McMillan, chief investment officer at Commonwealth Financial Network.
“Stagflation seems to break the rules of how the economy is supposed to work,” says McMillan.
A long-lasting surge in prices has been quite rare in modern history and until this year, the inflation rate hadn’t been above 5% for 6 months or more since the 1980s. Experts say that such periods of sustained, high inflation are most likely caused by either a global supply shock or poorly-guided economic policies.”
How the “TIONS” May Affect Cybersecurity Choices
In an article by GlobalNews.ca, they wrote, “Amid [economic] fears, Canadian businesses risk losing sight of cybersecurity. A potential recession has become a more pressing issue for Canadian business leaders. A new KMPG survey suggests that businesses risk overlooking the importance of cybersecurity, even as cyberattacks continue to rise.
KPMG surveyed business owners or executives at 503 small- and medium-sized Canadian companies between Aug. 16 and Sept. 1, 2022, and released its Global CEO Outlook Survey of its findings on Thursday.
In a release, KMPG said the survey found that “the number of CEOs at large Canadian companies who said they were “well prepared” or “very well prepared” for a cyberattack fell 17 percentage points from last year and those who said they were “underprepared” jumped three-fold.”
The CEOs also “reported an even bigger drop – nearly five-fold — in their level of preparedness against a specific cyberattack like ransomware (malicious software that holds data hostage in exchange for a ransom).”
KMPG’s cybersecurity partner Alexander Rau said the findings shouldn’t be seen as cybersecurity being deprioritized by business leaders, but rather other topics, such as a potential recession and the conflicts in Eastern Europe, are what’s coming more top of mind to leaders.
The firm said that when CEOs were asked what keeps them up at night, they put “cybersecurity seventh behind a range of other pressing near-term risks such as the economy, a potential recession, regulatory issues, and disruptive technologies.”
In a separate KMPG report in Canada, the firm said small- and medium-sized businesses reported in comparison that they feel more prepared to handle a cyberattack — up to nine percentage points.
KMPG pointed out however that more than two-thirds of businesses in the survey admitted that their cyber defenses can improve more and that includes making employees more aware of cyberattacks and how they work.
“They ranked cybersecurity as their second single-most-pressing concern today,” the firm added.
Rau said that small and medium organizations are in a tougher situation compared to larger organizations that have had the resources to invest in it over the years.
“You have organizations that have dedicated departments and partners that help them with defending their assets and information against hackers,” said Rau.
“But then you have smaller organizations, which is what the Canadian economy is built on and when it comes to those, having the resources available to them from a financial, human resources, and technology perspective is really difficult,” he added.
SMBs Are At Greater Risk of Attack
The article went on to say, “Rau said this put small- and medium-sized businesses at a larger risk for hacking and ransomware.
The report shows that 56 percent of small and midsize businesses surveyed have been attacked by cybercriminals in the past year by malware, ransomware, or phishing.
“Half said they have had to deal with a ransomware attack in the past year,” the report stated.
Small and midsize businesses also said 68 percent have a plan to address a ransomware attack if faced with one and 68 percent said geopolitical uncertainty is raising concerns about possible cyberattacks in their organizations.
“Attackers are becoming more sophisticated and we see more and more attack groups because as we see with crime, there’s money to be made,” said Rau.
As the priorities of businesses change with the economy, Rau said businesses should not lose sight of cybersecurity and continue ensuring that company data and information is secure.
“Small and medium businesses need to understand that they don’t have to do that by themselves. They can reach out to third parties who specialize in cybersecurity,” said Rau.
“In times when people are thinking about spending money right, you get a better return on investment when you engage security experts to help you secure your assets in the organization,” he added.
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