On 15 June 2022, the Federal Reserve raised its key interest rates by three-quarters of a point. This has been the most significant hike in three decades, signalling more rate increases. In the U.S., the central bank expects low economic growth.
While talking about the UK and European Union, the Bank of England raised its interest rates 13-year high four times since December. On 16 June 2022, the bank implemented a fifth consecutive interest rate hike. One can also expect a quarterly rate increase from the European Central Bank (ECB) by July 2022.
During the same period, on the other side of the globe, the head of Australia's Central Bank warned that inflation was rising much higher than expected.
World Bank's Global Economic Prospects report states, "Global growth is expected to slump from 5.7 percent in 2021 to 2.9 percent in 2022— significantly lower than 4.1 percent that was anticipated in January."
"The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid," said World Bank President David Malpass. "Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality," he further added.
Before proceeding, we must first understand the meaning and difference between Inflation and Recession, which are often confusing. According to Wikipedia, "Inflation is a general increase in the prices of goods and services in an economy." Investopedia states, "A recession is a period of declining economic performance across an entire economy that lasts for several months."
In other words, inflation and recession are indirectly proportional, and inflation decreases during the recession.
The economic meltdown during 2008-2009 was devastating for all industries, including the legal sector. We saw layoffs, salary decreases, a hiring freeze, and an increase in legal unemployment. Remembering the 2008 recession still gives goosebumps to the global legal fraternity.
According to the 2010 research by Eli Wald titled "The Economic Downturn and the Legal Profession, Foreword: The Great Recession and the Legal Profession". "The Great Depression exposed significant tensions between the majority of lawyers who struggled to survive and elite large law firm lawyers who worried not only about declining profits but also about maintaining their elevated professional status. As a result, solo practitioners and elite corporate lawyers pushed for different, indeed conflicting, strategies of response."
Although distressful, we should not ignore the positive side – opportunities created and materialized by the innovative legal leaders. The legal industry is known to evolve with time and reduce the business decision-making time. The recession brought a new wave of expertise and emerged with new delivery models. The developed delivery models rewarded efficiency and cost-effectiveness, focusing on value for every penny spent.
Post-recession, we saw great acceptance for legal services delivered through alternative legal services providers, legal outsourcing companies, and big fours foraying into legal services. Additionally, innovative and flexible fee arrangements along with delivery methodologies proved beneficial in adding tremendous value for clients.
The show must go on
Historically, the legal industry has always overturned the tides of uncertainties. Out-of-the-box solutions and consistent technological evolution proved pivotal in the unbridled times.
In our March 2022 article titled Reviewing the Global Legal Industry – 2021, we showcased how the global legal industry has fared during and after the pandemic.
When the demand for legal services decreased, the industry came up with innovative solutions, which further played a crucial role in managing the high tides of work when demand increased.
If we look at the pandemic period, many employees moved from bustling metropolises to their hometowns – not just to avoid the costs of living in a top-tier city but also to spend time with their loved ones. And this is not limited to lawyers; paralegals and other professional staff also wish to support their employers predominantly through remote work. Pandemic was when reliance on new technologies and adoption within the legal industry was at its peak. Although risk-averse, the legal sector was quick at new adoption, whether in court proceedings or in-house collaboration.
Upon consideration of the changing economic and working landscapes, how will the legal industry adapt? Legal enterprises have traditionally relied on increasing their rates yearly as a primary revenue growth strategy instead of increasing the average number of working hours. Perhaps history will repeat itself, but let's see what the future holds!