Are We in a Recession? How To Prepare For The Ominous Future

Tech layoffs, record high inflation, energy crisis, increasing interest rates and collapsing governments—the global economy is shook.

One question that appears to be on everybody’s mind is, ‘are we in a recession or are not yet?” 

Given the series of events that shook the world one after the other — the COVID-19 outbreak, the semiconductor shortage, the Russia-Ukraine war, climate change and more, it is only wise to assume that the future of the global economy is not very bright. In fact, nations are already suffering beyond measures. The Sri Lankan economy has collapsed, the UK is already facing stagflation, the US GDP is on a continuous downward spiral, Europe is facing an energy crisis and only the Russian economy is faring fine despite sanctions. 

Does this all mean that we are already in a recession? Or matters are going to get worse and we will soon be in a recession? The founder of the World Economic Forum said that the global economy “is out of balance.”

“The 2022 World Economic Forum in Davos, Switzerland, is a consequential and serious one because “we are at the turning point of history,” says Klaus Schwab, Founder and Executive Chairman of the WEF. Schwab tells CNN’s Richard Quest that creating coordinated responses to global challenges is key.”

Global economy is ‘out of balance’ says World Economic Forum Founder | Video Credit: CNN

Let’s DKODE one question at a time...

Are we in a recession?

For the first time, economists are not able to decide whether or not we are in a recession. Let’s take the case of the US economy. The country’s GDP has consecutively displayed a negative growth for 2 quarters of 2022. US GDP growth declined by 1.6% in Q1 2022. In the second quarter of the year, growth slowed down by 1.9%. Therefore, the first half of 2022 has been bad for the US economically. 

US GDP Growth Trend in 2022

Time Period Growth Rate
Q1 2022 -1.6%
Q2 2022 -1.9%

US GDP growth declined by 1.6% in Q1 2022. In the second quarter of the year, growth slowed down by 1.9%. Therefore, the first half of 2022 has been bad for the US economically. 

The standard recession begins when there is a drop of 5% or more in GDP growth. 

Consecutive negative growth of GDP is a green signal for a recession. By this logic, the US is in a recession. However, there are other factors at play that are not syncing with the terms and conditions. When it comes to identifying a recession, another important indicator is the depth of growth decline. The standard recession begins when there is a drop of 5% or more in GDP growth. 

Further, there are some sections of the economy that are relatively doing much better. These are sectors such as travel, healthcare and others. This is, however, not a very clear indicator given that some sectors always perform well even in a recession.

Still, according to the National Bureau of Economic Research, the figures suggest that we are not in a recession yet. However, this is the analysis of only the US economy. What about other regions like Europe? 

Is Europe in a recession?

Europe has a bleak picture to paint. The Europe continent is the worst affected by the Russia-Ukraine war. Euro has plummeted to a two-decade low against the dollar. The condition of the pound is even worse- the lowest since 1985.

Investors are suffering a massive shock due to the terrible energy crisis and sky-high inflation. The UK economy is already on its knees and is in a recession. 

All this signals that the European continent might be the epicentre of a global recession this time. Germany is inching closer to a record 70-year high inflation rate of 10%. According to the chief of Germany’s central bank, Russia’s natural-gas cutdown is the culprit behind the chaos. 

The same situation is unfurling in Spain where the inflation rate is the highest since 1984. Out of all the factors contributing to the fragile state of the European economy, the energy crisis is the biggest predator. In response to the support that Europe extended to Ukraine, Russia struck back by blocking its energy supplies to the continent. The result- is an energy crisis that can soon cripple the European economy. 

GDP Growth Rate of Germany, Italy and Spain

Country Q1 2022 Q2 2022
Germany 0.2% 1%
Italy 0.1% 1.1%
Spain 0.2% 1.1%

Out of all, experts have projected the worst effects for Germany. The nation has been estimated to lose $225 billion in 2 years due to the Russian energy blockage. The cost of living too has spiked dramatically in Europe.  The government in Italy has collapsed and investors dumped Italian government bonds due to the domestic political turmoil. 

To quote Peter Schaffrik:

“The PMI surveys signal that the euro area is entering recession earlier than we previously thought, led by its largest economy Germany, and we now see the euro area ‘enjoying’ a longer, three-quarter recession.” 

How do you stay protected during a recession? Here’s DKODING— Nine Things To do:

Yes, things are scary. But there are certain things you can do to make yourself immune to the effect of crumbling economies. 

1. Cut down on spending and start living within your means. 

2. Build an emergency fund if you don’t have one already.

3. Start making long-term investments

4. Assess your risk tolerance and prepare accordingly

5. Channel multiple sources of income

6. Maintain a high credit score

7. Diversify your investments. Don’t put all your money in one investment instrument. 

8. Repay debts already

9. If you are looking to switch your job, do it right now. The market has ample openings right now. This may not be the case soon. 

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