A global recession feels closer every day. After weathering the financial shock of the Covid-19 pandemic, the Russia-Ukraine war sent the world’s supply chains into a chaos that is still not contained. To make sense of what this means for markets at home and abroad, we caught up with Fintech expert Eugene Plotkin.
“The scenario we’re seeing right now is the hardest one to deal with,” he said. “Instead of a clear vision of what’s coming, there’s a lot of uncertainty. However, I think we can say that there are plenty of opportunities for companies that make smart moves right now.”
Eugene Plotkin made his name as a high-level investment banker with Goldman Sachs, where he developed finely tuned sense for timing the ups and downs of the market.
“Right now, the risk of recession is a lot higher than anybody would like to see,” he said. “We’ve got tremendous levels of inflation, higher prices for everyday goods and services, and we’re seeing a contraction in economic output. When you add that together, it feels like the perfect conditions for a recession.
“But if you look at the positive signs, like the federal policies around the world that are presenting a united front to stave off a recession, it’s very possible that what we experience will be more like a shallow dip,” he added. “I don’t think we’re looking at another generational downturn like we saw in 2008.”
Policymakers and businesses have learned from the mistakes that lead to Great Recession, he said, which adds to his optimism surrounding the likely length and severity of a multi-month downturn.
However, that relatively sunny forecast may not translate to every area of the economy. The Fintech sector, specifically, could get walloped.
“The problem with laying out a generalized forecast for the Fintech space is that it’s become quite a bit larger in the last few years,” Plotkin said. “With the sheer number of startups, it’s clear that even the threat of recession is going to wipe away a chunk of value. But there will be many, many companies that can conserve a little cash and sail through the downturn with ease.”
Adding to the complicated picture is the boom the sector received during the pandemic. When consumers were stuck at home, flush with stimulus funds and eager to spend, money flowed into the tech sector and created a bubble, Eugene Plotkin said.
When masks came off and tech spending slowed, reality hit. Some companies that didn’t prepare properly for a return to normal life saw their valuations plummet. The last few months have been an unpleasant wake-up call for young companies that took too much investor money and spent it foolishly, Eugene Plotkin noted.
He pointed to data showing that many Fintech companies are experiencing a market correction. In May alone, the sector shed 1,619 jobs.
“Most of the recession risk factors come from a confluence of global events that we really could not control, and some of it is our fault,” he said. “We saw it from both private and public sectors. When supply chain issues led to product scarcity, more than a few companies exploited the situation, and raised prices unnecessarily. At the same time, some government efforts may have rewarded consumers too much and boosted spending power to the point that inflation was inevitable.”
Now, as consumers face higher interest rates and continue to pay a premium for energy bills, it’s clear they feel differently than they did last year.
Fewer Americans have extra money in the checking accounts at the end of the month and more report they are not making progress toward financial goals like saving for education.
“People aren’t spending as much and are certainly not investing, which limits the amount of money businesses can use. That’s plain to see,” Eugene Plotkin said. “But what hasn’t been factored in is exactly how consumer behavior is changing. If Fintech companies aren’t giving consumers better, faster, or more efficient ways of interacting with their money—ways that really appeal to them—they’re going to lose out. I’m not sure that a lot of firms have a handle on where consumers are headed right now.”
Economists have been slowly increasing the risk of recession. While most still subscribe to a figure below 50 percent for the next two years, Eugene Plotkin’s advice is to keep a sharp eye on the major players over the next few months.
“There is never a time without an opportunity if you’re prepared for it,” he said. “It’s just a matter of seeing what’s coming down the pike and making sure you’re best positioned to not just withstand a downturn, but that you’re able to use it to become better at some part of your business.”
