With the onset of the latest global economic crisis, much of the news, mainly in advanced economies, was shocking.
Unemployment increased, company profits deteriorated, financial markets shook, and the real estate sector collapsed. Is there a single word to define these changes? Yes, it’s “Recession.”
Recession Meaning
A recession is a considerable downfall in economic activity that lasts a few months to years. According to experts, a recession is when a nation’s economy encounters negative Gross Domestic Product (GDP), increasing unemployment, low retail sales, and narrowing measures of income and manufacturing for a long time. Recessions are an inevitable part of a business cycle.
In layperson’s terms, the Recession is when companies make few sales and earnings; people lose their jobs, the cost of real estate properties starts declining, and investment capital declines. In short, the system goes through a phase of financial struggles that could last from a few months to a few years.
A recession is a term used to define a situation in which a country’s economic turnover is bad or slow. This cycle can last for an extended period, even several years, due to the growth of a country’s Gross Domestic Product (GDP) deteriorating for a long time.
GDP is the economic activity of a country during an era. So, if a country experiences an endless downfall in economic activity for two generations, then the country may experience a recession.
Meanwhile, as per the National Bureau of Economic Research (NBER), located in the United States, “recession” is a condition in which a country experiences a massive deterioration in the economic situation within a few months in terms of income, GDP, industrial production, unemployment rate, and wholesale-retail sales.
When was the last Recession?
The last U.S. recession was in 2020, at the onset of the COVID-19 Pandemic. As per NBER, the two-month Recession ended in April 2020, certified as a recession as it was deep and persistent regardless of its record short length of 1.0.
How long does a Recession last?
The average U.S. recession lasted 17 months since 1858, although the six recessions from 1980 continued for less than ten months.
What Causes Recession?
Understanding the recession source has been one of the persistent areas of economics research. There are different reasons why a recession happens. Some are associated with abrupt changes in the costs of the inputs utilized in manufacturing goods and services.
Several economic theories explain why and how an economy experiences a recession. These theories can be categorized as financial, psychological, or a mix.
Few economists focus on economic changes, including structural changes in industries, as the most significant. For instance, a sharp surge in oil costs can increase costs across the economy, leading to the Recession.
Some theories reveal that financial factors too can cause recessions. These theories mainly focus on the credit growth and accumulation of financial risks during competent economic times, the narrowing of acclaim and money supply when the Recession begins, or both.
Other theories focus on psychological factors, like ecstatic during economic expansions during downturns, to define why recessions take place and persist.
Psychological Factors that Cause Recession
Economists consider psychological factors to be also the reason behind a recession. The extreme enthusiasm of investors over the years has made the economy peak.
In addition, due to all economic decisions and actions always being forward-looking to a certain degree, the unreasonable expectations of businesses, investors, and customers are generally involved in the beginning and spread of an economic downturn.
Economic Factors that Cause Recession
Beyond financial accounts and investor psychology, actual modifications in economic fundamentals also significantly contribute to a recession. Some economists explain Recession is caused because of fundamental economic shocks, like disturbances in supply chains and the damage they can cause to various businesses.
Shocks affecting significant industries like transportation or energy can have widespread effects that can cause many companies to reduce and cancel their investment and hiring plans instantaneously, with an adverse impact on customers, workers, and the stock market.
Specific economic factors can also be linked with the financial markets. Market interest rates signify the cost of financial liquidity for brands and the time preferences of customers, investors, and savers for current vs. future consumption.
When sufficient resources are unavailable to support business investment plans, business failures may occur because of escalated production expenses. This situation may be enough for an economy to experience a recession.
Different factors cause a recession in a country. Some of the factors that cause Recession are as follows:
- Inflation- Inflation is a constant rise in prices of products and services. This price rise impacts people’s purchasing power, followed by a downfall in the production of products and services.
If not checked for a long time, this results in high unemployment because of mass layoffs, Recession, and poverty.
- Extreme Deflation- Deflation can also cause a recession. It is a condition where the cost of goods and services occasionally reduces, resulting in a reduced wage reward.
Also, deflation is characterized by delayed buying of goods and services until the minimal price. It is very unsafe for business owners. Because people’s buying power is likely to rise, business owners must reduce production expenses, ultimately leading to a loss in business.
If the business units or community stop doing economic activities like spending their money, it is easy for the current economic conditions to be protected.
- The Asset Bubble Burst- The bubble bursting is the next cause of a global recession. It can happen when investors take hasty steps. For instance, there is a massive purchase of property and shares with the assumption that the cost will increase fast. Then, when the economy is in an unstable condition, they will decide to sell it, resulting in panic selling, leading to a recession because of market crashes.
- Unexpected Economic Shock: An unexpected economic shock is another cause of a recession. It is demonstrated by a downfall in buying power caused by financial obstacles and other severe issues like a lot of debt. The build-up debt will affect the interest that must be paid and cause the inability to pay it off.
- Technological Development: A recession is an economic downturn not caused by just economic activity. Technological advancements are vital in the Recession. It can happen due to a downfall in employment which is being changed by leading technologies like robots and Artificial Intelligence. As a result, work opportunities will reduce drastically and increase the unemployment rate.
- An imbalance between manufacturing and consumption- The imbalance between manufacturing and consumption is the following reason that can cause the Recession. Products and services manufactured in excess with less consumption or buying power can adversely affect producers. It has led to massive imports, multiplied corporate spending, and less profits for domestic organizations.
- Economic growth Drops for two repeated quarters- Another indication of a recession is the downfall of economic development for two successive quarters, which is determined by the reducing a nation’s Gross Domestic Product (GDP).
- Import Value is more than Export Value- Another reason that causes a Recession is that the value of a country’s imports is much more than exports. It can affect the state budget deficit and decrease national income too.
- Excessive Unemployment Rate- The high unemployment rate can show that a country is going through a recession because labor plays a significant role in a nation’s economic cycle. If the unemployment rate increases continuously, it will cause a rise in the crime rate.
A recession is a condition that arises due to several factors. For instance, the financial crisis, making wrong decisions, supply chain disturbances, external trade disturbances, the bursting of economic bubbles, to several factors beyond human control like pandemics and natural disasters.
Don’t Get Tensed; Here’s How to Survive a Recession
Build an Emergency Fund- Having robust emergency money becomes important during economic uncertainty. Focus on saving expenses that can help you survive for at least 3 to 6 months in case of unexpected job loss or reduction in income. Concentrate on savings by cutting down unnecessary expenses and setting a portion of your income separately daily.
Assess and Diversify Income Sources- Depending on a single income source can be difficult during a recession. Explore vast opportunities to expand your source of income. Try to do a part-time job, take up some freelancing work, or start a side business. Diversifying your source of income can offer stability and lessen vulnerability during an economic decline.
Focus on Skill Development- Improving your knowledge and skills can prepare you to fight against the Recession. Discover areas of professional growth and invest your time in learning new skills or improving the existing ones. Upskilling can increase your value in a company or even increase the chances of finding a better job if required.
Control expenses and reduce debt- During a recession, managing your debt responsibly and reducing unnecessary costs is essential. Check your budget and find areas where you can reduce your costs. List out high-interest debt and avoid new debt unless it’s unavoidable. Following an economic mindset can help you fight against financial challenges.
Conserve a Healthy Network-聽Your personal and professional network can be crucial in surviving a recession. Maintain strong relationships with mentors, colleagues, and industry experts. Networking can offer access to聽 job opportunities, partnerships, and valuable guidance during difficult times.聽
Stay informed– Know about economic trends, new industry developments, and market conditions. Stay informed through trustworthy sources and financial newspapers. Adaptability is essential during a recession, so you must explore new career opportunities and industries that match the changing economic condition.
Seek out Guidance from Professional Experts- If you feel overwhelmed or doubtful about surviving a recession, consider seeking suggestions from a financial advisor. They are the right people to offer expert guidance tailored to your situation. They will help you to create a customized plan for surviving the challenging time of a recession.
Conclusion:
Surviving a recession requires a proactive approach and a promise to adapt to changing circumstances.
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Digital Marketing incorporates different methods like Social Media Marketing, Content Marketing, Email Marketing, and Social Media Marketing.
Developing these skills can help promote your brand, products, and services cost-effectively, reaching a wider audience even during a recession.
Try to enroll in online courses, attend webinars, or join industry communities to learn the basics of digital marketing.
Remember, recessions can be challenging, but they also bring opportunities for growth, personal development, and innovation.
Stay informed, remain positive, and follow proactive steps, including learning digital marketing, machine learning, etc., to protect your finances during these difficult times.