Today’s world is filled with countries battling to protect their economies from a fall. A country’s economy is measured by GDP and the overall worth it has to generally acquire income through taxes and other sources to fund the overall budget of the government.
Nonetheless, over the years countries have faced difficulties in meeting budget demands for long periods. One basic consequence of recession is the likelihood of its spread across countries if left unabated. This work takes a look at the concept of recession offering clarity to the causes and tips for survival for countries.
Meaning of recession
Recession is the continuous reduction of monetary movement and general economic activities, which impacts the entire country and generally affects the spending habits of the people in the country.
Recession affects the spending habit of people and corporations, this critical period is occasioned by a series of job losses, a lack of revenue, and an overall reduction in the disposable income of the citizens.
A typical example of a modern-day recession is the recession of Greece and most European Union members. The EU to this day tries to foster ways for an increased monetary flow and an avoidance of a repeat of the Greek recession.
Causes of recession
Recession is caused by varying factors, some of which may have little or no relationship with the nation’s monetary policy or economic outlook. Nonetheless, recession has been in occurrence in almost 20 nations of the world in the past decade. We highlight the major causes of recession globally below.
Overheated economies are a significant cause of recession in present-day society with increased occurrence in developing nations like Nigeria.
An overheated economy occurs when there is a resultant high demand for goods and services that is not proportionate with the available labour in the country. It is indicated with high demands but low labour, with an eventual failure to produce or deliver services on the high demand.
For instance, there is a high demand for motor vehicles in a country and a low labour unemployment rate in the automobile industry; this circumstance would see the motor vehicle manufacturing companies difficulty meeting demand
2. Bubbles in assets
An asset bubble occurs when asset prices in the country are extravagantly increased beyond the actual spending capacity of the average citizens in the nation.
The asset bubbles coupled with overheating economies account for over 70% of the causes of recession worldwide.
3. Rising rates of interest
Spending on vital purchases like homes and automobiles is discouraged by higher interest rates. They also tend to cut back on investment, which slows job growth and may make it harder for money to get into asset markets, which could lead to a recession.
4. Shocks on the supply side
Most companies can be guided by the increase in demand for a product and then cause a resultant increase in the supply of the product. The danger in this style lies in the increase in demand falling downward or taking a slide which would cause an eventual supply shock by the company.
Supply shocks cause the company to lose funds and therefore cause a downturn in the company’s finances and a possible termination of workers.
5. Dark swan occasions
Recessions can be caused by war, disease, terrorist attacks, and other unforeseen circumstances. One obvious illustration is the COVID-19 pandemic.
There is no gainsaying that recessions are inevitable; in fact, every nation in the world has had its economy fall into recession at one time or the other, whether noticed or unnoticed. In some cases, government policy works to delay or lessen the overall impact brought by recession on the economy.
For the everyday citizen, the impact of recession can be overwhelming. Here are five survival tips to keep you up to the task in a recession.
1. Monitor your expenses: During a recession, expenses should be lowered as much as possible. Try monitoring the usual expenses you make that cause you to lose money monthly, and take steps towards lowering your expenses and spending on significant items throughout the recession.
2. Save more: This tip flows from the previous one, try saving more after reducing your expenses. With more savings, you are more suited to withstand a job loss or an eventual delay in the payment of your salary caused by the recession.
3. Clear your debt: Debts are liquid expenses that do not add to your income. Once a recession is looming, make sure to clear all debts in anticipation of a survival tactic, to pull the possible debt financing funds into your savings.
4. Get a side hustle: This is perhaps one of the most significant of the tips; having two or more jobs during a recession can be overwhelming but pays off in the long run. Having numerous streams of income during a recession can assist in overcoming the harsh repercussions caused by recession.
Recession has been in existence since the dawn of time. The resultant economic fall from a developing economy has been a matter of concern for nations. Nations spend millions of dollars tracking the overall activities of their economy in a move to avoid recessions and inflation. Nonetheless, with all the caution, countries eventually fall into recession.
In 2013, Greece fell into recession, this fall saw over ten EU members grapple to stay away from recession. In 2015, Nigeria officially fell into recession, this fall saw over five members of the Economic Community of West African States (ECOWAS) community fell into recession. In 2021, the United Kingdom fell into recession just months after leaving the EU.
This work provided the causes, and meaning attributed to recession while offering citizens of recession-impacted territories options to scale through the economic fall.
Frequently Asked Questions (FAQs)
No, the resultant effect of printing additional currency in circulation lowers the strength of the currency, which causes resultant inflation.
Government can provide tax-free holidays to companies, loans to businesses, and other incentives.