What is a Recession and How to Survive it?

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The arrival of COVID-19 brought with it an economic earthquake. Most of the world’s economies were shaken and suffered severe losses.

The pandemic threw them into a spiral of financial decline. For over a year, empty streets and people working from home had badly impacted major industries, crippling global economies. This gave rise to something called a recession. Last month, the World Economic Outlook reported that we might be “on the brink of a global recession, just two years after the last one.” Referring to a new one a few years after the one seen in COVID-19.

So what is it that has shaken the world since COVID-19? Read on to learn what it means and how to survive it.

What is a Recession?

Recession does not have a single definition; it is described differently in different countries around the world.

The European Union defines it as:

“Zero or negative GDP growth in at least two successive quarters.”

The National Bureau of Economic Research (NBER), the government department that holds authority in tracking the business cycles of the United States of America, defines it as:

“A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

This means that when the GDP, income, production, and sales decrease and unemployment increases, a country is on its way toward a recession. Companies impose revenue restrictions and, in some cases, significant layoffs, exacerbating the situation. Investors are usually told not to put money into companies because their income is low and there is a chance they won’t be around in the long run.

However, the part about “a few months” may not be spot-on because the NBER termed a two-month economic downfall in the U.S. as the shortest recession yet, which happened during the recent pandemic.

What Happens in a Recession?

A recession is an inevitable phase in the business cycle. From one point of view, it shows that there are fundamental problems with the economy that, if fixed, can only lead to a healthy economy. Otherwise, if these problems are not controlled, they can grow like cancer and even lead a country to bankruptcy, as happened recently with Bangladesh.

But its early stages show a lack of money among the masses. Because of the minimum amount, industrial production is cut down by a lot, which means that sales and income are lower.

Without contingency planning, many industries must go through layoffs to keep the business going. This results in higher unemployment and, ultimately, less money in circulation, creating a loop.

To deal with this, each country’s government or Reserve Bank uses different fiscal and monetary policies. In some cases, reserve banks provide loans at low-interest rates or print more money, while in others, the government runs development projects to generate more revenue.

How to Survive a Recession?

With the current economic climate, it should be clear that the future is not very bright economically. Even if the recession ends, the effects of the recovery will not be seen until years later. It takes time to heal brokenness. This is why you need to come across as a survivor.

Here are some ways you can do so.

Look Out for Job Opportunities

You’ve heard it a hundred times, but hear it again: do not put all your eggs in one basket. Working another job or selling e-books on Amazon can’t hurt even if you aren’t in a recession. You will have an additional source of income and a contingency plan to deal with economic downturns.

Live a Moderate Life

This is a practical approach to life that will help you in the long run. Even in good times, reining in your desires can go a long way. During a recession, you can get into the habit of not living beyond your means and saving every penny.

Not staying away from credit cards because you cannot control yourself is only harmful during a recession. You may already be struggling with money, and having a liability will double your problems.

Make Investments

Make investments, and not just any random ones. Short-term investments can only satisfy you for the time being. Be a sophisticated investor and cash in the long term, so you have something to recline against in a recession. You do not have to hold your head in a panic if the stocks or market shares fall a bit. You are not planning on cashing in your investments soon, anyway.

Make Multiple Investments

Investing in stocks is risky, especially during a recession. The business cycle will change, and the economy will eventually improve. But it is not guaranteed for companies either. While some may survive and surpass others, others may face a significant layoff. Making the wrong investment will cost you money. Instead of any random company, invest in blue chip stocks. Cryptocurrency is on the rise; follow the trends and invest wisely. In addition, investing in precious metals like gold can also pay off.

Take Risk Seriously

A recession is not the time to spark a new business or become an inspirational entrepreneur. Many businesses have done well during the pandemic, so this may not be a strict rule of thumb, but if you make a mistake, you could lose all your savings. So when things get tough, try not to make emotional decisions. Make your decisions deliberately.