What Is Recession? What Are The Reasons For This And How To Avoid It?

What is recession? What are the reasons for this and how to avoid it?

Recession is being discussed everywhere, even the big countries of Europe have been affected by it. The word recession creates a state of fear in the minds of people because the biggest danger is their loss of employment or being fired from the job. The situation of recession has a bad effect on the economy, business and spending capacity of common people of every country and India is also not spared from it. But amidst all this the question arises that why does recession happen and what are the steps that we can take to deal with the situation of recession? In today’s article, we will look at all the aspects related to recession and will also know what methods we can use to deal with it.

What is recession?

Recession is a decline in the economic activity of a country for an indefinite period. When there is a decline in the total production of products and services in the country due to which the rest of the financial activities of the country are also affected, then it can be called a period of recession. Due to recession, there is a huge decline in the functioning of business and trade due to which people are thrown out of work and the unemployment rate increases. In simple language, a decline in the economic condition of the country for an indefinite period of time which can be several months or even years is called recession. Due to recession, many economic indicators become negative such as GDP rate, industrial production, employment, people’s expenditure, business profits and investment etc. The duration of a recession and its causes may vary depending on the impact of the factors causing it.

Causes of Recession

Recession does not happen for any one reason. It comes into effect due to many factors which can badly affect the economy of a country. What are those reasons? Let us know.

Turmoil in the economy – Economic imbalances: One of the main reasons for recession is the poor economic and financial condition of the country. The main ones are excessive debt on the government, lack of assets, lack of control over investments and expenses, etc.

Financial crisis: Major activities in the financial sector like crisis in the banking sector, stock market crash etc. affect the country’s economy to a great extent and it also becomes the main cause of recession.

External shocks: Events like natural disasters, political conflicts or sudden changes in the prices of goods imported from abroad can disrupt economic activities and trigger recession.

Government policies: Bad fiscal or monetary policies such as high taxes, excessive regulations, or very high or low interest rates can also contribute to recession.
Effect of Recession – Effect of Recession

The country’s economy is badly affected due to recession.

Reasons for recession:

Job losses: Due to recession, people reduce their expenditure due to which the demand for products and services decreases. Due to reduced demand, the production of the business also reduces which causes people to lose their jobs and they also find it difficult to find a new job.

Decline in consumer spending: Due to decrease in people’s income during recession, they also reduce their expenses. Due to reduced expenses, there is a reduction in the sales of products and services which causes economic crisis for businesses and people.

Business failures: Due to the factors mentioned above, many businesses come to the verge of closure.

Stock market volatility: The main reason for recession can be the crash of the stock market or instability in it. In such situations, investors need to be very cautious because there is a huge possibility of investors incurring losses due to the crash of stock price.

Ways to deal with Recession?

During recession, all people, businesses and the country face financial difficulties. It is almost impossible to ignore recession, in such a situation, there are some measures which can be adopted to reduce the impact of recession to a great extent. Some of the main ones are:

Budgeting and financial planning: Use a personal budget to track your income and expenses. Stop your unnecessary expenses and pay attention only to useful and necessary expenses. Identify those things where you can save more money by reducing your expenses.

Emergency fund: Create an emergency fund to cover expenses in case you lose your job. An emergency fund should be 6 times or 12 times your total monthly income. Always keep a certain portion of your monthly income aside for your emergency fund.

Increase your income sources – Diversify income sources: To increase your income sources, work part time, try your hand at freelancing or start a small business of your own. Having more than one income will help you avoid financial crunch during recession.

Enhance your skills: Invest to learn new skills. New skills will help you in finding a new job or starting your own business in case you lose your job.

Networking: Build a good and strong professional network. Networking will help you a lot in income, job leads and career advice.

Debt management: Avoid taking new loans and try to repay old loans as soon as possible. Try to repay the loans on which the highest interest is charged first. Less debt will increase your income and help you maintain your lifestyle in times of inflation.

Prioritize savings and investments: Try to save continuously keeping long term investments in mind. Diversify your investments and keep equal amount of investment in low risk options.

Health care – Health and self-care: Take care of your physical and mental health. Be sure to take a health insurance so that even if you fall victim to any disease during the recession, the burden of its expenses does not fall on your savings.

Stay informed and adaptable: Keep yourself updated with the news and movements going on in the economy. Keep changing your career according to the recession and keep an eye on the job opportunities going on in the market.

Conclusion

Recession is an important part of the economic cycle of all countries and it repeats itself every 10 or 20 years. Understanding its cause, its impact and measures to deal with it are important for every business, policymaker and government. It is not possible to ignore recession, so it is better for people to be prepared for it, use a good financial plan and be ready for changes in themselves and their business or job as per the situation.