HOW 2024 WILL IMPACT 2025

The economic landscape has a profound effect on businesses, influencing everything from growth strategies to day-to-day operations. When economies contract or slow down, businesses often face challenges like reduced demand, higher costs, and tighter access to capital. Conversely, economic growth can present opportunities, but it also comes with its own set of pressures, such as increased competition and the need to scale quickly.

Here are some key economic impacts on businesses today in 2024 that will carry through in 2025:

Fluctuations in Demand

Fluctuations in demand are affecting businesses worldwide in 2024 due to a variety of factors. One significant contributor is the persistence of inflation, especially in services, which is slowing down overall economic growth. Global growth for 2024 is projected to be around 3.2%, unchanged from 2023, but economic conditions vary significantly across regions. Advanced economies are expected to see a slight uptick in growth, while emerging markets may experience a modest slowdown, particularly due to weaker performance in China. This divergence creates uneven demand across industries and regions, impacting businesses differently depending on their geographic exposure and sector focus.

Supply chain disruptions continue to pose challenges, driven by geopolitical events, such as conflicts affecting shipping lanes, and lingering effects of the pandemic on logistics and production. These disruptions have led to increased costs and unpredictability for businesses, especially in sectors reliant on global supply chains. For instance, rising ocean freight rates, congestion, and blank sailings (canceled trips) are pushing costs upward and making demand more volatile, especially for import-heavy industries like retail and manufacturing.

Businesses are also facing shifting consumer behaviors, as uncertainty around inflation and interest rates affects spending patterns. In particular, durable goods have seen reduced demand while essential and service-based sectors continue to grow.

Cash Flow and Financial Management

In 2024, businesses are grappling with several key challenges related to cash flow and financial management. One major trend is the increasing adoption of cloud-based financial systems, which offer businesses greater flexibility, cost-effectiveness, and enhanced security by allowing real-time access to financial data. This trend is especially beneficial for small and medium enterprises seeking to optimize their financial operations and reduce IT infrastructure costs.

Another important shift is the integration of artificial intelligence (AI) and machine learning (ML) into financial management systems. These technologies are being used to streamline processes, improve predictive analytics, and enhance fraud detection. AI and ML enable companies to automate routine tasks, like invoice processing, while gaining valuable insights into financial trends that help in making data-driven decisions.

Cybersecurity is also a growing concern, with businesses needing to implement more stringent measures to protect sensitive financial data. Advanced security features, such as multi-factor authentication and real-time threat monitoring, are becoming standard in financial management systems.

Moreover, treasury functions are evolving from back-office roles to strategic ones, focusing on real-time cash management, global payment harmonization, and API integration. These developments help businesses better monitor liquidity and automate key tasks like currency exchanges, enhancing overall cash flow management.

Overall, the 2024 landscape for cash flow and financial management is characterized by digital transformation, automation, enhanced security, and strategic treasury management. Businesses that leverage these trends can improve financial resilience and agility.

Supply Chain Disruptions

Supply chain disruptions continue to impact businesses globally in 2024, primarily due to geopolitical tensions, extreme weather events, and logistical bottlenecks. Several significant factors are contributing to these disruptions:

Geopolitical Instability: The ongoing conflict in the Red Sea has severely impacted global trade, particularly affecting shipments that rely on the Suez Canal. Many vessels are now rerouting around the Cape of Good Hope, adding thousands of miles to their journeys and significantly increasing shipping costs. This has led to delays and heightened freight costs, especially for routes between Asia and Europe. The ripple effects of this are expected to contribute to global inflation.
Weather-Related Challenges: The Panama Canal, a critical artery for global trade, has faced severe drought conditions, resulting in water shortages that limit the number of vessels passing through. This has led to longer delivery times and added pressure on alternative shipping routes. Similarly, extreme weather patterns in other regions have caused further delays in global logistics.
Port Congestion and Labor Strikes: Many ports around the world are still grappling with congestion issues exacerbated by labor shortages and strikes, especially in major hubs like Europe and North America. These issues compound delays and increase costs, pushing businesses to seek flexible logistics solutions and alternative routes.
Technological Solutions: In response to these disruptions, companies are increasingly relying on technology for real-time tracking, advanced data analytics, and inventory management. This helps optimize logistics, reroute shipments, and maintain operational efficiency even in the face of significant challenges.

These disruptions are creating a challenging environment for businesses, leading to higher costs and longer delivery times. As a result, companies must adopt flexible, tech-enabled strategies to navigate these persistent issues.

Labor Market Pressures

The current labor market is marked by significant pressures, driven by a combination of factors that have created a challenging environment for businesses globally.

Labor Shortages: Many economies, especially in the U.S., Europe, and Asia, are facing severe labor shortages. In the U.S. alone, businesses need an additional 4.6 million workers annually to meet demand. This issue is even more acute in countries like Germany and Japan, where aging populations and low birth rates limit the labor pool. The shortage is keeping upward pressure on wages, and in turn, raising production costs, which businesses are often passing on to consumers, contributing to inflation.
Mismatch in Skills: Even in countries with available workers, there's often a mismatch between the skills workers possess and the skills needed by employers. This has led to rising job vacancies despite relatively stable unemployment rates, particularly in advanced economies. To address these gaps, companies are increasingly investing in training, reskilling, and technology.
Impact on Productivity and Economic Growth: With fewer workers, businesses are finding it harder to maintain productivity. Although technology and automation are mitigating some of the effects, they are not enough to fully compensate for the labor shortfall. Countries that rely more on adding labor rather than improving productivity are particularly affected by this issue.

In response, many countries are exploring a multifaceted approach, including incentivizing older workers to stay in the workforce, encouraging immigration, and increasing participation from underrepresented groups such as women and youth. These strategies are crucial for stabilizing the labor market and ensuring sustainable growth.

Regulatory Changes

Businesses are navigating a complex regulatory landscape shaped by several key trends and changes. Here are some of the most significant regulatory challenges:

Inflation and Financial Stability: Regulatory bodies worldwide are concerned with maintaining financial resilience considering prolonged inflation and elevated interest rates. Supervisors are increasingly scrutinizing businesses, particularly in the financial and real estate sectors, where rising rates impact debt servicing and asset valuations. There is also an ongoing focus on ensuring that companies treat vulnerable customers fairly, particularly considering the economic pressures on households.
Technological Changes and Cybersecurity: The rapid advancement of AI, particularly generative AI, is leading to heightened regulatory scrutiny. Compliance officers are tasked with managing new regulations related to data privacy, fraud prevention, and cybersecurity. The integration of AI into various sectors has escalated the risks of cybercrime and scams, leading to increased compliance demands.
Environmental, Social, and Governance (ESG) Regulations: ESG compliance remains a global priority, with many countries adopting or tightening regulations around environmental sustainability, corporate governance, and social responsibility. Companies need to stay ahead of international and national standards to avoid penalties and ensure they meet investor and regulatory expectations.
Sector-Specific Regulatory Changes: Highly regulated industries, such as healthcare and financial services, are seeing an influx of new rules. For example, healthcare is dealing with new entrants unfamiliar with its regulatory environment, leading to challenges in compliance. Similarly, auditing standards are tightening, and changes are increasing the compliance burden.
Global and Local Elections: The outcomes of key national elections in 2024 are likely to impact regulations related to sanctions, cross-border trade, and digital economies. Countries with changing political climates may rapidly alter their regulatory frameworks, particularly around sanctions and international compliance.

Staying ahead of these changes requires businesses to invest in regulatory mapping, automation of compliance processes, and proactive risk management strategies.

Technology Disruption

Technology disruption is rapidly reshaping businesses across industries, with several key trends standing out.

Generative AI and Automation: While there were fears that AI would replace human workers, it's now clear that AI is being used to enhance productivity rather than replace humans. Generative AI is transforming sectors like customer service, coding, and even creative fields by automating repetitive tasks and augmenting human creativity. Businesses are leveraging AI to boost decision-making with actionable insights and streamline workflows.
Increased Focus on IT Outcomes: Companies are more focused on deriving business value from their IT investments, with technology being tied directly to measurable business outcomes like revenue growth, cost optimization, and customer acquisition. There's also a trend toward adopting flexible IT infrastructures like hybrid clouds and integrated systems.
Supply Chain Optimization: Automation and advanced analytics, powered by AI, are improving supply chain efficiency, helping companies anticipate disruptions, manage inventories, and make real-time adjustments to operations.
Cybersecurity and Quantum Readiness: With growing cyber threats, businesses are adopting quantum-resistant cryptographic techniques to protect data from future quantum-based attacks. Meanwhile, the rise in social engineering attacks is pushing companies to strengthen identity protection.

These disruptions not only present opportunities but also challenges, as companies need to invest in reskilling their workforce, integrate new technologies, and ensure data security to remain competitive in the evolving digital landscape.

Market Entry and Expansion

In 2024, market entry and expansion strategies are adapting to dynamic global trends, with several key factors driving successful approaches.

Strategic Market Research: Companies are leveraging deep market research to understand local consumer needs, competition, and cultural dynamics. Entering a new market requires identifying gaps, analyzing demand, and anticipating potential challenges. This research enables businesses to tailor their product offerings and marketing strategies accordingly.
Technological Leverage: Emerging technologies like AI, cybersecurity frameworks, and sustainable tech solutions are becoming essential tools for companies looking to expand. For instance, integrating AI systems with responsible governance (AI TRiSM) and using cybersecurity strategies like Continuous Threat Exposure Management (CTEM) ensures both operational efficiency and data security.
Local Partnerships: Establishing local partnerships is crucial for a smoother market entry. Collaborating with local businesses and regulatory bodies helps navigate legal complexities and cultural barriers, which boosts credibility and reduces risks.
Regulatory Navigation: Regulatory compliance is becoming more intricate as businesses expand into new regions. Companies must adapt to local laws and standards to mitigate risks and position themselves as trustworthy entities.
Agility and Adaptability: Businesses entering new markets need to stay flexible, adjusting strategies as market conditions evolve. This includes being open to shifting focus or modifying products based on real-time feedback.

By focusing on these strategies, businesses can enhance their brand presence, reduce risks, and position themselves for sustainable growth in new markets.

Sustainability and ESG (Environmental, Social, and Governance) Pressures

Sustainability and ESG (Environmental, Social, and Governance) pressures have intensified in 2024, driven by regulatory demands, stakeholder expectations, and legal challenges.

Regulatory Pressures: New laws and disclosure requirements are expanding globally. For example, over 50,000 companies in the EU are facing nature-related reporting obligations due to the Corporate Sustainability Reporting Directive. Globally, countries like South Africa, Nigeria, and Brazil are aligning with the ISSB standards for sustainability disclosures.
Legal and Financial Risks: There is a surge in climate litigation and greenwashing claims. In the Netherlands and Australia, companies have faced lawsuits over misleading sustainability claims. The US and European countries are also seeing increased litigation targeting banks, auto manufacturers, and fossil fuel companies over their climate-related actions and commitments.
ESG and AI: Artificial Intelligence is emerging as a critical ESG factor, with governments enacting safeguards against bias, discrimination, and social harms caused by AI. The focus on AI governance is expected to grow in 2024 as companies and regulators tackle ethical concerns.
Sustainable Finance: The sustainable finance market is maturing, with new green bond regulations in the EU aiming to align proceeds with the EU Taxonomy. However, the sector is grappling with performance target concerns and greenwashing risks.

The pressure to meet these evolving ESG standards, combined with legal and reputational risks, is pushing companies to act decisively to avoid penalties and enhance their long-term sustainability.

Consumer Behavior Shifts

Consumer behavior is heavily shaped by ongoing technological, economic, and social shifts. Key trends include:

Economic Caution: With recession fears lingering, consumers are tightening budgets and focusing on essentials, while seeking value and quality over quantity. Spending on non-essentials has decreased, leading to a preference for fewer but higher quality products.
Sustainability Demand: A growing majority of consumers expect businesses to align with sustainability values. They prefer eco-friendly products and those with strong environmental, social, and governance (ESG) credentials. Brands that prioritize sustainability are experiencing faster growth than those that don’t.
Mobile and Social Commerce: Consumers increasingly shop through mobile devices, with mobile commerce expected to account for over 40% of all eCommerce by the end of 2024. Social media platforms are also becoming essential shopping hubs, especially influenced by recommendations from micro-influencers.
AI and Data Privacy: While AI-driven tools like personalized shopping experiences are becoming common, consumer trust in AI remains low. Data privacy concerns are rising, and customers expect transparency in how their data is used.

These shifts mean that businesses need to adapt quickly, ensuring they offer convenience, high-quality products, sustainability, and transparency to meet evolving consumer demands.

Our Perspective

The key challenges of 2024 are expected to continue influencing business dynamics in 2025, with several trends carrying over and evolving:

Economic Uncertainty: High inflation, interest rates, and lingering recession fears from 2024 are likely to impact consumer spending patterns in 2025. Businesses will need to focus on cost optimization and value-based offerings, as consumers prioritize essential and high-quality goods over luxury items. Companies that fail to adapt to these economic conditions could face reduced demand.
Sustainability and ESG Compliance: As sustainability becomes more deeply embedded in consumer behavior, companies will face increasing pressure to meet environmental and social governance (ESG) standards. In 2025, businesses that haven't invested in sustainable practices may face regulatory penalties, consumer backlash, and higher operational costs. Furthermore, the rise in climate litigation and greenwashing claims will push companies to demonstrate authentic commitment to ESG goals.
Technological Disruption: The AI and automation trends of 2024 will continue to reshape industries in 2025, but businesses will face increased scrutiny regarding ethical AI usage and data privacy. Regulatory bodies are expected to implement stricter governance around AI applications, which will require companies to ensure compliance while leveraging the technology for efficiency gains.
Labor Market and Talent Shortages: Labor shortages in 2024, especially in developed economies, will persist in 2025. Businesses may struggle to fill key roles, driving up wages and increasing operational costs. Companies will need to invest in employee retention, reskilling, and automation to maintain productivity amid ongoing talent gaps.
Geopolitical and Supply Chain Volatility: Disruptions in global supply chains caused by geopolitical tensions, like the conflict in the Red Sea or extreme weather events, will continue affecting businesses into 2025. To navigate these uncertainties, companies will need to diversify suppliers, adopt flexible logistics strategies, and invest in digital supply chain technologies.

Overall, businesses that can anticipate and adapt to these ongoing challenges—by embracing technological innovations, sustainability practices, and flexible operational models—will be better positioned to thrive in 2025.