Home ›› 28 Oct 2022 ›› Editorial
Recession is the intriguing term given to a sharp slow- down in the rate of economic growth or a modest decline in the economic activities, as distinct from a slump or depression which is a more severe and prolonged downturn.
Recessions are a feature of the trade cycle. (Trade cycle is the process by which investment, output and employment in an economy tend to fluctuate up and down in a regular pattern causing ‘booms and depressions, with recession and recovery’ as intermediate stages. The trade cycle is one of the mysteries in economics). Two successive declines in seasonally adjusted, quarterly real Gross Domestic Product would constitute a recession.
Recession is associated with falling ‘investment’, rising ‘unemployment’ and sometimes falling prices. A recession occurs when a Region’s economy declines over several months or even years. During the period the region’s GDP or total value of goods and services it produces, drops. At the same times, dramatic changes may occur in the prices of commodities like oil or gas. Previously profitable industries may suddenly become less valuable. Consumers may see increased inflation or higher than normal levels of unemployment.
As a result consumers’ confidence suffers, meaning that people may be less willing to spend money than they would usually do. For example, in 2008, Americans experienced a significant recession following the sudden collapse of the US housing market. More recently, the COVID-19/Coronavirus pandemic caused major losses in daily business and employment across multiple industries including hospitality, retail business and tourism.
Warning lights are flashing in the global economy as high inflation, drastic increase in energy prices and negative impact of war between Russia and Ukraine. According to various research organizations assessments 98.1 per centi chance of global recession is there. Recently the CNN reported that the chance of global recession was more as outlined by a probability model run by Ned Davis Research institute of Florida, US. Recession possibility was this high during severe economic downturn in 2020 and also during global financial crisis in 2008 and 2009. The prediction of global recession in 2023 was made by a number of economists.
Positive action need to be in operation to get the high inflation under control and also to tackle rise in energy prices. However, a move was undertaken by European Political Community of 44 nations recently on 7th of October, 2022 met in Czech capital Prague to find a solution to control high inflation and to put a cap on rising energy prices. But the honest move failed to have a consensus on any proposals.
According to World Economic Forum economists consider a global recession even mild in nature is somewhat likely. Economists have their forecasts for growth and expect inflation-adjusted wages to keep falling during the rest of the year and the next. The surging food and energy prices have led to high cost of living forcing consumers and business people to resort to pockets of unrest and demonstration as has already been seen in Prague, Paris, Germany and other European cities. Survey conducted by World Economic Forum over Economists revealed that 79 per centi of them believed that rising prices would trigger social unrest in low income countries and the rest in high income economies.
Investors have become shaky in sinking into a bear market. Big investors were expecting a rough landing in 2023. There has been a growing concern that the risk of recession is looming over the global economy.
Ned Davis Research , a Florida based research firm known for its Global Recession Probability Model raised the likelihood of global recession next year, the highest since COVID -19 pandemic related downturn of 2020. People often ask as to how they will understand the impending recession. The answer lies in a sustained reduction of Gross Domestic Product (GDP), increased unemployment, a decline in stock prices, high living cost, high inflation, high energy prices, and a mismatch between demand and supply of goods and services signaling an impending recession. The probability of a global recession within the next year has certainly increased. Persistently high inflation will discourage spending by consumers and lead many Central Banks to raise interest rate.
Elevated energy prices will continue to impact global growth negatively especially in Europe during the ensuing winter. The spillover of European countries’ downturn would reach Bangladesh as our major export destination has been Europe or US.
Normally there is a question whether the world is in a recession in 2022. In this regard World Economic Forum’s community of Chief Economists at Geneva, Switzerland on 28th September,2022 revealed that a reduced growth, stubbornly high inflation and real wages to continue falling for the
Rest of 2022 and the year next (2023) would give a signal to global recession to be at least somewhat likely.
During the period of recession companies make fewer sales and economic growth stalls or become non-existent. To cut raising costs organizations may be forced to lay off large proportion of staff resulting in widespread unemployment.
At the same time hiring slows down , making it difficult for the newly unemployed to find another job. Investment like stock and real estate tend to lose money meaning retirement and saving accounts can suffer. Lenders may also respond to the increased financial uncertainty by raising their lending requirements making it much more difficult for people to qualify for new credit.
However, if we look at the US economy, we find an opposite picture. During 2022, the job market is strong, unemployment rate is at the lowest since 1969, consumers’ spending has increased and corporate profits are rising. The officials at Federal Reserve Bank believe that the worst US inflation in 40 years would cool down during 2023 and supply would catch up the demand. Researchers have predicted that the rising risk of recession would have an impact on US recession probability model at the rock bottom level.
To be frank we believe that recession is an unavoidable part of economy but it can weather the storm by anticipating challenges early and prepare for future. If we look at the statistical data, we see a possibility of recession looming over the global economy. Data reveal that global inflation in 2022 is at 8.6 per cent and would be 6 per cent in 2023. Economic growth had been 6 per cent in 2021, 3.2 per cent in 2022 and would be 3 per cent in 2023.
IMF has made a projection that global economic growth in 2023 would be 2.3 per centi. Therefore, it may be predicted based on IMF Data, we see a bleak future in global economic growth in 2023.Reasons for global recession could be attributed to high energy prices, war in Ukraine, cut in future gas supply, falling demand of goods and services, and rising inflation.
Recession would negatively impact a middle income economy like Bangladesh.
As such there are a few steps to help plan for uncertain financial situation (to prepare for recession):-
Take stock of your financial priorities;
Focus on debt repayments;
Consider your career opportunities, both now and in the future;
Try to bolster your energy fund ahead of time;
Make an effort to stay on top of your financial situation and maintain repayment schedule so to avoid being a defaulter.
Try to go for austerity measures in using energy, consumption of essential items, cut down your demands for luxury items. etc.
The writer is former Director General, EPB. He can be contacted at hassan.youngconsultants@gmail.com
