Are We Heading Into A Recession

The Oxford dictionary defines a recession as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.” In plain language, a recession is when many people around us are unemployed for a long time . Let us know Are We Heading Into A Recession

Yes, there is a high possibility that we might end up heading into recession within a year. The Corona Pandemic hit us in February 2020. Since then, many individuals have been unemployed, companies have shut down, industries have crumbled, and entrepreneurs are burdened with debts. Many major economies are heading toward recession. 

We are already facing inflation which is making it even more evident that we will soon be head-on with the recession. 

But what exactly happens during a recession?

1. There will be a rise in unemployment
2. Due to inflation, bank’s interest rates touch the sky 
3. Monthly payments shoot up and income shoots down.
4. We start defaulting on loans EMIs

• Eventually, banks do not issue new loans, which hinders entrepreneurs to expand their businesses or create new opportunities for the already unemployed people.

• This loop goes on until we decide to start fresh by sacrificing the current invested capital or if the government interferes.

To quote a personal experience:

A friend of mine owns a company that helps bigger companies efficiently use their energy.

Their agenda is to help their clients to lower their electricity consumption using their technology.

It is a decade-old business, and they were doing quite well. 

But when the pandemic hit, they ran out of work, and he had to fire a lot of employees. He could not pay salaries to many of them and some of them did get salaries for quite some time. He has a loan of 250,000 dollars still pending. He is completely stuck in the debts and defaulted many EMIs.

• This is the plight of many small entrepreneurs. Who contributes to the nation’s GDP more than any other individual who is working with an MNC in a comfortable job? 

What is making things worse besides inflation and covid?

• The answer is Russia and Ukraine war. War means a calamity and what happens during calamity? People don’t come out of their houses, prices hike, businesses fall, economies are threatened, and people die.
• If Russia withdraws from Ukraine, it could lead to better economic conditions for Europe and other emerging nations.

• Apart from this war, even the loosening of the No-Covid strategy of various countries can also lead to better economic conditions. These strict rules of the nations are pushing the average person to Ignore the current market situation and the business to not function fully.

• Governments should develop policies to open the market completely yet control the covid cases with awareness among the civilians.

How do we know that we are in a recession?

If the GDP of our country declines for two consecutive years, then we consider it a recession and there is a committee that focuses on business cycles called the national bureau of economic research. They will officially announce that a country is in recession.

What about poor countries or developing nations?

It could be much worse. It depends on several factors like alliances, local businesses, and government policies. They are currently dealing with the rise in food prices which contributes to a large segment of their expenditure.

To conclude, we are not currently in a recession, but we are mostly heading towards one. We are at significant risk of hitting the recession within a year. This might vary between countries. It will not be the same situation for all countries. Significantly, countries like U.S. and UK might not be impacted. It could also happen that economies might get hit and come back shortly and get hit again. Currently, it is not completely predictable. Looking at the current situation we can only assume that we might end up like the 1970’s or 2008 recession if not prepared well. 

Frequently Asked Questions?

• Will the major economies like U.S. and UK. also face a recession?

Yes, they will. But as they are strong economies with a solid financial background. The recession might not impact them on a high-end. It might just be touch and move on.

• Can the export businesses not grow the economy?

No, because the export goes hand in hand with import. Even if we are doing good exports, we still must be able to sustain it to impact the GDP. Right now, we are in inflation which affects input costs directly leading to a low GDP.

• If the recession hits, what can we do?

The answer is to lay low. It can also depend on your profession. First of all, have that emergency fund in place. Have that backup required to survive without an income or profit. If you are an investor the key is to hold on to your investments.