TDQ Explainer: What is a Recession & Things you need to know about it
Updated: Aug 3, 2022
Amidst lakhs of graduates gearing up to enter the workforce, recession fears lead giant Software companies including Microsoft to lay off employees while others like Meta, Google, Apple, Amazon etc freeze hiring. Additionally, Indian startups contribute to 13% of the 2022 layoff reports. This news has led to a global discussion among media, business tycoons, professionals, job seekers along with the employees curious about the What, where, when and How of Recession.
Recession is a temporary phase of an economy during which the commerce and manufacturing activity declines, typically indicated by a reduction in GDP over two consecutive quarters. Recession is caused by varied factors, most common ones being excessive spending, recurrent natural disasters, inflation etc. While the other types of causes include:
A. Unexpected economic shocks:
An unexpected event that creates a serious financial loss is one of the causes. One of the recent examples was the shutting down of economies due to the global Covid outbreak.
B. Technological Advancements:
Swift technological advancements lead to shifts in the employment pattern, some advancements create job opportunities. For instance: Remote working patterns during the pandemic worked well for the world. But, changes such as automation tend to put people out of jobs due to Artificial Intelligence (AI) and Machine Learning (ML).
C. Real Estate Bubble:
The bursting of bubbles containing false hike in property prices creates irrational behavior. As an after effect, panicked owners start selling their property at a lesser price than the original value.
D. Debt Distress:
Excessive debts make people financially burned, often leading to them defaulting on huge payments which eventually causes bankruptcies. Housing loans have been one of the causes of the Great Recession in the past.
Things you need to know about Recession:
Recession VS Depression
Recession is a temporary issue that lasts for months while Depression will last for years, and has a severe impact on employment and GDP.
Traits Of Recession
If we see a dip in stocks, increase in unemployment, increase in prices of essential commodities, drop in spending power of private sectors, rise in price of commodities like gold and silver and increase in number of Software Development Companies burrowing loans.
When is Recession due?
There are varied perspectives on this; some believe that the recession may hit the world in the end of 2022 while some predict that it could impact us in the second quarter of 2023.
Recession ends with growth and stability of the economy. There is no specified time period, however, that it may probably last for around 11 months.
Impact on average people
Recession alters the lifestyle of average people as we see a dip in their spending capacity along with financial pressure on them due to loss of jobs, mounting debts and reduced salary along with a constant fear of not securing their future.
Preparing for Recession
We can prepare ourselves for recession by creating an emergency savings fund, paying off debt, upskilling ourselves, keeping a track on spending, and working on side hustles.
(Author: Alisha Fernandes is an inquisitive learner & content writer at TechDoQuest)