Executive Summary

o The world today has moved past the era of COVID lockdowns and massive stimulus but has entered a period of high economic uncertainty – inflation in the
US and Europe at the levels of the early ’80s, the deadliest military conflict in Europe since 1945, high levels of geopolitical and trade tensions, and central bank
moves shifting consumers from eagerness to caution

o Recession fears dominate the news cycle, and the post-COVID recovery is slowing, which could result in recession in some of the world’s largest economies,
with economists predicting a >50% chance of a recession in the US, though potential length and depth remain highly uncertain

o Inflation in the US and Europe continues to fall from its peak, but uncertainty remains on how long it will take to get back to central bank targets and how
high rates might need to go to achieve that, with both the Fed and ECB emphasizing their commitments to fight inflation

o It is critical that business leaders prepare plans to handle a wide variety of risks – both economic (inflation, recession, and capital costs) and geopolitical
(trade tensions, sanctions, and war) – which could put many business models at risk

o No one can say with a high degree of certainty the exact timing, depth, or length of the next recession – and those who claim to should be treated skeptically –
but this document aims to provide a framing for that risk and context against other recent recessions, to help understand the variety of scenarios to plan for
and what the latest data says

o Several key developments in the last month

The US (+1% year-over-
year [YOY]) and eurozone
(+1.9% YOY) slightly
outperformed Q4 real GDP
growth expectations, but the
danger is not over
Inflation remained high but
continued to slow in the US
(6.4% YOY vs. 9.1% peak)
and eurozone (9.2%
vs.10.6% peak); early Jan
data of 8.5% inflation in
eurozone likely to be revised
Consumer confidence Europe has had a warm China has remained US Treasury yield
and purchasing manager winter, pulling back from open, and its initial curves and economist
indices remained in extreme gas price spikes in COVID wave seems to surveys both continue to
contraction territory for Aug (though still much have largely passed, suggest high probability
most major economies higher than the 2010s) though it did impact both of a US recession within
the health and economic 12 months
activity of the population

Sources: Refinitiv; OECD; US Bureau of Labor Statistics (BLS); IMF We will continue to refresh this view periodically as new data becomes available
AGENDA

Recession context

How to approach a recession

Appendix: Key trends and indicators

Global

US deep dive
 RECESSION CONT EXT

Recessions are a certainty; only the

timing and depth are unpredictable
US real GDP growth, quarterly
YOY % CHANGE

1990-91 2001-02 2007-09 2019-21

Savings Dotcom Global COVID The world’s economy
and loan
crisis
bubble financial
crisis
crisis
is on a razor’s edge
And could easily fall into
recession if financial
conditions tighten

AYHAN KOSE EFI

Chief Economist, World Bank

Sources: US Federal Reserve; OECD

 RECESSION CONT EXT

A US or European recession may take several

different forms in the near term (examples)
Perfect o Central banks raise interest rates just enough to stall an inflationary spiral while short-term pressures are resolved

landing o Demand remains robust enough to avoid a meaningful recession

o Despite post-COVID secular pressures, inflation expectations stay within an acceptable range of 2% target

Market o Central banks tighten rates until they induce a financial crisis
correction o Market values are hit hard, disproportionately impacting top income earners
o A rush to quality in the US dollar leads to debt-driven crises in overexposed emerging markets

Inflation o A gentle recession happens without sharp central bank rate rises, driven by consumer fatigue
fatigue o Recession lasts about 2-3 quarters with a moderate drop (may already be taking place in Europe and US)

Stagflation o Insufficient action raising interest rates and/or sustained spillover from the Ukraine crisis entrenches inflation
o Declining consumer confidence and spending power pushes the economy into recession or stagnation
RECESSION CONT EXT

Pandemic era stimulus, global supply shocks,

and rising international tensions led to high inflation
G20 real GDP growth and inflation, quarterly
YOY % CHANGE
2007-09 Recovery following Largely stable growth of ~3-4% 2019-21 COVID recovery
Global financial crisis financial crisis annually in G20 from 2011-COVID COVID crisis and inflation

Source: OECD
Inflation Real GDP growth
RECESSION CONT EXT

We’re keeping our eyes on key risks in the most important

world economies

Across economies
GDP, inflation, exchange rates,
central bank moves, purchasing
manager and consumer confidence
indices

UNI TED STATES EUROPE CHI NA

Key o Housing market o Energy prices o Housing market

economic o German / Italian bond spread o Local government finances
drivers

Domestic and o Debt ceiling and o Tensions over energy prices o Government and population
geopolitical budget passage and debt reactions to COVID opening
risks oTensions over trade with o Russia-Ukraine war o Tensions over trade with US/EU
China

o Intra-EU tensions o Tensions with Taiwan

 Five
RECESSION CONT EXT
trends will
continue
to shape
the world Thesis
Reemergence of great power
P O S T- rivalry and heightened levels of
G L O B A L I Z AT I O N political, trade, and military conflict
will end the United States’ ‘unipolar
moment’(since the 1991 collapse of
the Soviet Union)
Large investments in automation
LABOR as technology improves and the
A U T O M AT I O N labor force ages, adding to
inequality and creating new
challenges for governments
2020-22
developments
Mounting tensions between world
powers, with the largest war in
Europe since 1945, fast-escalating
trade tensions between China and
the US, and protectionist industrial
policies all combining to make
geopolitics center stage
The sudden supply constraint on
labor, and attendant rise in cost amid
COVID turbocharged the economics
of automation. Innovation in robotics
andAI has also increased the scope
of what can be automated while
decreasing the cost of automation
Near-term
path
Fundamental tensions are likely
to only grow, with complex global
trading systems continuing to
decouple, and continuing risks of
kinetic conflicts
Automation will continue to spread,
amid aging demographics and
improving technology. This will
particularly disrupt middle-income
jobs
 Five
RECESSION CONT EXT
trends will
continue
to shape
the world Thesis
Technology has reduced the ‘cost
EX- of distance,’ giving people greater
U R B A N I Z AT I O N choice of where they live and work
The era of capital superabundance
C A P I TA L is drawing to a close, as the
R AT I O N A L I Z AT I O N population of much of the world
shifts from working savers to
retired spenders
Reducing carbon emissions will
ENERGY require large-scale investments at
TRANSITION a global level and will likely raise
the cost of energy throughout the
period of transition
2020-22
developments
COVID and remote work have
caused a step change in how
people work. Some who could
afford it wanted more space,
moving farther from city centers
A massive surge of post-COVID
inflation in the US and Europe
became the key focus of
policymakers amid supply constraints
and strong demand, though it has
passed its peak
The Russia-Ukraine war and the
global energy crunch that preceded it
are causing a rethink of Europe’s,
Japan’s, and the developing world’s
energy approach, alongside energy
investments in the US spurred by the
Inflation ReductionAct (IRA)
Near-term
path
The pre-COVID working norms will
not return. An increasing portion of
those who can work remotely will,
accelerating migration to the outer
suburbs/exurbs
Inflation will likely continue to
decline from its peak. Ultimately,
nominal interest rates will depend
on central bank moves, but
underlying pressures will be more
inflationary than in the 2010s
A global transition will take more
time and money than the public
realizes, and no country has made
the long-term commitments needed
to achieve it. Progress is likely to be
highly fragmented and slower,
rather than globally coordinated and
faster
AGENDA

Recession context

How to approach a recession

Appendix: Key trends and indicators

Global

US deep dive
RECESSION APPROACH

Critical choices in the past

have been made by

TRAP1:BURNTHEFURNITURE Restructured costs before the downturn,

Misconceived that aggressive cost-cutting without cutting muscle
is crucial to winning in a recession
Examples: ruled out acquisitions, slashed R&D and spending on S&M
activities key to growth, let go of valuable talent
Put the financial house in order: diligently
managed liquidity and balance sheet
TRAP2:TRYEVERYTHING
Strayed from company’s core with desperate
bid for growth by betting on everything
Played offense by reinvesting selectively
Examples: invested in ‘what’s hot,’ simultaneously expanded in for competitive outperformance
multiple directions without a well-thought-out strategy

T R A P 3 : L AT E T O T H E PA R T Y
Waited too long before taking action, took a reactive (vs. Pursued a proactive M&A pipeline
proactive) approach to ride out the downturn
Examples: overlooked opportunity to leverage unstable period to
leapfrog competitors, failed to set up signposts to act ahead and take
no-regret moves swiftly
RECESSION APPROACH

New recession playbook exists for today’s environment with an

initial focus on recession and stress testing

PRE-RECESSION Use stress testing to gain clarity on response plan in different scenarios based on signposts and triggers
SCENARI O PLANNI
Create high resolution visibility on spend and key response areas to support better decision-making
NG
Strengthen balance sheet management ahead of a downturn to position for liquidity and M&A investments

Reset the cost Solidify new pricing & Win on purpose through Double down on Strategically allocate
base, prioritizing portfolio management sustained customer operational resiliency CAPEX, R&D, and M&A
automation capabilities relationship building and traceability funding

o Simplify the work and o Streamline the product o Enhance growth/share o Execute on quick response o Take prudent decisions
prioritize automation to offering and optimize mix through superior actions to mitigate current on CAPEX and R&D:
mitigate labor constraints to mitigate supply shocks customer engagement disruptions where to cut and where
and drive growth to invest
o Create fuel to invest in o Build business intelligence o Build evergreen supply
key priorities (e.g., o Keep SKU-level to target customer chain risk assessment and o Proactively pursue M&A
growth, ESG) through pricing plans and segments based on mitigation capabilities and selectively exit
the downturn capabilities evergreen recessionary impact, businesses that no
competitive vulnerability longer fit strategically, or
are unprofitable
RECESSION APPROACH
Robust pre-recession planning helps companies prepare
Where we are today
o Which areas of your
business have been most
impacted by disruptions today?
To what extent?
o What actions have you taken
to limit recession risk, counter
cost increases, and manage
cash flow?
o What quick wins can you
implement around products,
pricing, procurement, eliminating
work, etc. to reduce costs and
maintain top line in a recession?
Pre-recession
planning
Key competitor &
Stress testing customer trends Resilience
o What areas of the business o How will customer needs/ o How do we create
are most exposed to and preferences evolve with business resiliency
at risk in an economic persistent disruptions coupled and control costs in
downturn? To what extent? with a slowdown? the face of likely
continued disruptions
o What are the trigger points o What are our competitors’ and a downturn?
for further actions to be responses to disruption and
taken? Which actions come how will this change the o In which areas do we
first, second,...? competitive landscape? want to outperform
and build
o What are signposts for o How will a reinvented supply competitive
different degrees of an chain look – one that is disruption- advantage?
economic slowdown? proof, flexible against customer
What other disruptions will needs, and contains costs?
be at play?
o How should we redesign how work
gets done to meet changing talent
landscape and scale a self-funding
automation program?
AGENDA

Recession context

How to approach a recession

Appendix: Key trends and indicators

Global

US deep dive
AGENDA

Recession context

How to approach a recession

Appendix: Key trends and indicators

Global

US deep dive
 GLOBAL TRENDS | PMI

Most major economy PMIs are currently near or below 50,

suggesting low growth or contraction
Purchasing Managers’ Index (PMI), monthly

> 5 0 I N D I C AT E S G R O W T H

< 5 0 I N D I C AT E S C O N T R A C T I O N

MOST
RECENT 58 51 49 U 51 50 47 U
DATA INDIA(JAN) JAPAN(JAN) K(JAN) CHINA(JAN) EUROZONE(JAN) S(JAN)

Source: S&P Global, from Macrobond

 GLOBAL TRENDS | INFLATION

While US and eurozone inflation rates have recently

peaked, they remain historically high
Inflation (YOY % change), monthly

MOST
RECENT 6.5% 4.0% 8.8% 2.1% C 9.2% 6.4%
DATA INDIA(JAN) JAPAN(DEC) UK(JAN) HINA(JAN) EUROZONE(DEC) US(JAN)
8.5% preliminary
Sources: OECD; US Bureau of Labor Statistics (BLS); Indian National Statistical Office (NSO); UK Office for National Statistics
estimate for January
 GLOBAL TRENDS | GDP

The post-COVID rebound has receded, though major economies

have maintained positive YOY growth
Real GDP (YOY % change), quarterly

MOST
RECENT 5.7% I 0.6% J 0.4% 2.9% U 1.9% 1.0%
DATA NDIA(Q3) APAN(Q4) K(Q4) CHINA(Q4) EUROZONE(Q4) US(Q4)

Source: OECD
 GLOBAL TRENDS | CONSUMER CONFIDENCE

Consumer confidence is at low levels across major economies

OECD Consumer Confidence Index, monthly (100 = long-term average)

MOST
RECENT 97 93 U 92 97 97 U
DATA JAPAN(JAN) K(JAN) CHINA(NOV) EUROZONE(JAN) S(JAN)

Source: OECD
 GLOBAL TRENDS | ENERGY PRICES

Natural gas prices have surged, especially in Europe, but oil

prices have nearly returned to January 2020 levels
Index relative to Jan 2020, monthly

MOST
RECENT 5.5X 1.7X 1.3X
DATA EUNATURALGAS USNATURALGAS CRUDEOILPRICES:B
(VS.JAN2020) RENT-EUROPE
Sources: US Energy Information Agency (EIA); IMF; Federal Reserve Bank of St. Louis
AGENDA

Recession context

How to approach a recession

Appendix: Key trends and indicators

Global

US deep dive
 US T RENDS | CONSUMER HEALT H INDEX

Our proprietary Bain Consumer Health Index shows an

economic outlook in line with the 5-year average in the US
US CHI by household income, monthly

POSITIVEOUTLOOK

N E G AT I V E O U T L O O K

MOST
RECENT 98.6 98.8 97.1 99.1 97.7
DATA COMPOSITE UPPER MIDDLE LOWER AVERAGE(18-22)

Source: Bain CHI

 US T RENDS | MONET ARY POLICY

Pandemic-era accommodative monetary policy contributed to

post-pandemic inflationary pressure
Rate (%) 3 RD P A R T Y F O R E C A S T S

MOST
RECENT 5.5% 6.4% 6.3% 4.75%
DATA PRODUCERPRICEI CONSUMERPRICEI 30-YEARFIXED FEDFUNDSRATE,
NDEX(PPI-JAN) NDEX(CPI-JAN) MORTGAGERATE(ASOF2/16) UPPERTARGET(FEB)
Sources: Board of Governors of the Federal Reserve System; US Bureau of Labor Statistics (BLS); Freddie Mac, Fannie Mae (30-year mortgage forecast & Fed funds rate forecast); Federal Reserve Bank of Cleveland (inflation forecast)
 US T RENDS | INFLAT ION

Recent inflation data is beginning to show prices easing

throughout the US
Dec 2022 Jan YOY
Key components of US CPI, monthly (pp contribution) weight inflation Commentary

10% Relatively low inflation in this category (includes

9.1
All other 30% 3.5% medical, personal care, apparel, education, etc.)
8.5 8.6 8.5
8.3 8.3 8.2
8 7.9
7.7
7.5 Was the largest component of inflation until Oct
7.1 2022. Price of gas and used cars spiked from
6.5 6.4 Transportation 17% 3.8% Mar/Apr 2021-Apr/May 2022, peaking at 60% and
45% YOY, respectively. Prices have since fallen in
6 both categories

4
Food Significant increases across most food and
14% 9.9% beverage staples

2 Utilities 5% 13.2% Household energy has risen in price considerably

Now the largest contributor to inflation, rent and

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Shelter 34% 7.9% Owners’ Equivalent Rent (OER) inflation has risen,
2022 - 2023 from ~4% in Jan 2022 to ~8% in Jan 2023

Source: US Bureau of Labor Statistics (BLS), from Macrobond

 US T RENDS | US T REASURY SPREAD

The 10-year minus 2-year Treasury yield spread falling

below zero indicates market expectation of contraction
10-year minus 2-year US Treasury yield spread, monthly average (pp)

-0.8pp
as of 2/17

Note: Data represents difference between 10-year Treasury yield and 2-year Treasury yield
Source: US Treasury Department
Recession (US)
 US T RENDS | LABOR

Unemployment has returned to historical lows, but labor force

participation has stabilized ~1pp below pre-COVID levels
Unemployment rate, monthly, seasonally adjusted

Labor force participation rate, monthly, seasonally adjusted

Notes: U-3 unemployment shown for US; CIVPART shown for labor participation rate
Source: US Bureau of Labor Statistics (BLS)
 US T RENDS | HOUSING

Housing market is showing signs of

softness amid sharp rise in interest rates
30-year fixed mortgage rate Housing prices Housing starts
30-year fixed mortgage rate average in US, Case-Shiller US national home price index, monthly New privately-owned housing units started in US
monthly (%) (2000 prices = 100) (thousands of units, seasonally adjusted)

6.3%
as of 2/16 297
1.3

YOYCHANGE

Sources: US Census Bureau; HUD; Freddie Mac; S&P Dow Jones Indices
 US T RENDS | KEY MET RICS

Key economic indicators

Indicator Latest Next release Commentary
VALUE PERIOD RELEASE

Real GDP (YOY % change) 1.0% Q4 Jan 26 Apr 27 Below the 2010-19 average of 2.3%, and the Q3 2022 figure of 1.9%
2022 2023 (1st estimate) 2023 (1st estimate)

10-year minus 2-year US Treasury Feb 17 Traded on open Traded on open

yield spread -0.8pp market market
The Treasury curve has been inverted since Jul 2022, a strong historic indicator of a recession within 12 months
2023

Composite PMI Jan Feb 6 Mar 6

46.8 2023 2023 2023 (est.)
A rise from Dec 2022 measure of 45, but has been below 50 (indicating contraction) since Jul 2022

Unemployment rate Jan Feb 3 Mar 3

3.4% 2023 2023 2023 (est.)
Lowest rate in nearly 50 years, tied with level in 1969. Usually a positive indicator, but a concern for persistent inflation today

Labor force participation Jan Feb 3 Mar 3

62.4% 2023 2023 2023 (est.)
Stable at ~63% from 2015-20; reached lows of 60% during COVID, recovered to ~62% in Jan 2022 and has remained at that level

Jan Updated Updated

Bain Consumer Health Index 98.6 2023 weekly weekly Consumer outlooks relatively close to, but slightly above, the 5-year average of 97.7

Real advance retail sales and food Jan Feb 15 Mar 15

services (YOY % change) 0.0% 2023 2023 2023 (est.)
After a strong recovery from Jun 2020-Feb 2022, has averaged 0% from Mar-Dec 2022 (vs. 2.5% 2010-19)

Case-Shiller housing index Nov Jan 31 Feb 28

(YOY % change) 7.7% 2022 2023 2023 (est.)
Although positive in YOY terms, the index has fallen from its peak Jun 2022 level by 2.4%, the biggest fall since 2011

Housing starts, total units Jan Feb 16 Mar 15

(YOY % change) -21.4% 2023 2023 2023 New housing starts have fallen by ~25% from their Apr 2022 peak (though that peak was still ~20% below Jan 2006 level)

Consumer Price Index, urban Jan Feb 14 Mar 14

consumers (CPI-U) (YOY % change) 6.4% 2023 2023 2023 Peaked at 9.1% YOY in Jun 2022 (highest level since 1981); headline figures have continued to slowly decline

Producer Price Index, all Jan Feb 16 Mar 15

commodities (PPI) (YOY % change) 5.5% 2023 2023 2023 Peaked at 22.7% YOY in Nov 2021 (highest level since 1974), though it has slowed rapidly since Jun 2022

30-year fixed mortgage rate, Feb 16 Updated Updated

average monthly 6.3% 2023 weekly weekly Reached an all-time low of 2.65% in Jan 2021. Most recently peaked at 7.08% in Oct 2022, subsequently declining

N/A Feb 1 Mar 22 Having lowered rates to near zero in Mar 2020, the Fed aggressively raised rates throughout 2022, slowing the magnitude of
Federal funds rate, upper target 4.75% 2023 2023 increases in Feb 2023 to 25bps

Sources: Bureau of Economic Analysis (BEA); US Bureau of Labor Statistics (BLS); US Census Bureau; S&P Global, from Macrobond; Bain CHI; US Treasury Department; Federal Reserve Bank of St. Louis; S&P Dow Jones Indices; Freddie Mac; Board
of Governors of the Federal Reserve System
This work has been based on secondary market research; analysis of financial information available or provided to Bain; and a range of interviews with
customers, competitors, and industry experts. Bain has not independently verified this information and makes no representation or warranty, express or
implied, that such information is accurate or complete. Projected market and financial information, analyses, and conclusions contained herein are based
(unless sourced otherwise) on the information described above and Bain & Company’s judgment and should not be construed as definitive forecasts or
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