3 Signs the Economy Getting Worse

Understanding What’s Happening

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It is clear that knowing what happens during a recession, whether it is in a country or in the world at large, can be crucial information to have at your disposal. Yet, even before we can counter the effects of recession in our businesses, it imperative that we have a working definition of what a recession is and how it functions. Keep reading, and I’ll explain to you the basics of recession and tell you what it is – and what it’s not.

Difference between Recession And Depression

First, let’s define recession. It is used to refer to a period of time characterized by economic contraction that is limited in time frame or scope. This is in contrast to the classic economic recession which includes a dramatic decrease in a country’s real GDP. It has been defined as a decline of more than 10% over three or four years. With this clearer distinction, we can now take a closer look at what happens during a recession.

Characteristics Of A Recession Period

The first sign of trouble comes in the form of stock market crashes. The role of many economists is to be on the lookout for the sort of trends that could foretell the coming of another recessionary period. One of the biggest indicators is the most bear markets come just before recessions. This is due to the stock markets being influenced by the economic slowdowns that occur in the months or weeks prior to the actual contraction of the economy. By the same token, the markets can also indicate the end of the recession too.

1. Rate cuts– There is also a link between interest rates and market behavior. Often, the rates will drop during a recession. These cuts are made in order to encourage consumer spending by making it cheaper and easier to borrow money. At the same time, the State or other financial institutions may impose stricter regulations on the use of financial instruments so access to these instruments or systems is limited.

2. Job losses– This results from the loss of customer demand for products and services in the manufacturing sectors. In some cases, the demand bottoms out and the industry is forced to contract in the form of factory closing and further measures the retain liquidity. One of the first moves made by businesses is to cut jobs if the required turnover has not been reached after a a few months. If the company does go bankrupt, more job losses could result following the liquidation of the company’s assets.

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3. Government intervention– At some point in the process, the government will intervene in by establishing policies and introducing incentive measures like tax cuts and rebates. Like interest rate cuts, these are part of a strategy to increase or stimulate consumer spending.

Getting Through A Recession

Even if you do know what happens during a recession, it is still vitally important to remain calm. This can mean the difference between success and failure if you have a business. Panicking doesn’t help at all since you end up losing the ability think clearly. You may end up making hasty decisions that could have detrimental effects on finances.

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