What is a Recession?

Traditionally, a recession is considered a period when economic growth slows significantly and remains stagnant for several months or more. When an economy enters a recession, production as a whole falls. Unemployment rises as businesses reduce expenditure and output, and consumers buy fewer things.

Dark Side of Economic Recession

There is now a self-fulfilling aspect to pessimistic outlooks on the economy. Consumers and businesses will cut back significantly on spending if they feel a recession is approaching, a domino effect that sends the economy into a free fall.

Escalating Inflation Leading to Recession

Inflation has reached levels not seen in 40 years. Russia's invasion of Ukraine and the ongoing worldwide health crisis are both disrupting supply systems and raising concerns about a global food disaster. Fuel prices have risen to all-time highs due in large part to the conflict, further straining already tight family budgets. Pakistan and the surrounding areas would come under even more stress as a result of high import prices, a drop in international demand for goods, and China's economic decline.

Possibility of Coming Economic Recession

The combination of a low unemployment rate and a fluctuating stock market is raising red flags about the possibility of a recession. The State Bank has raised interest rates to address the persistently high inflation. It is increasing the cost of borrowing money for businesses and individuals to decrease demand and thus prices. Still, the State Bank is balancing on a knife edge. Its goal is to reduce inflation by slowing the economy just enough without causing a recession.

What Do Economists Suggest Dealing with an Economic Recession?

Economists agree that rather than pulling back during a recession, strengthening one's financial position is the best course of action. Now is the time to get a new job or negotiate a raise to satisfy your financial obligations. This is a great moment to hunt for jobs because there are more job openings than in 50 years. Even if you manage to save up a sizable emergency fund, a recession could swiftly wipe it out. If you lose your job, suffer an emergency, or have an anticipated expense like college tuition, you should have six months' worth of savings. Spending more money on necessities rather than wants may soon become a compulsion. Now could be a good moment to adjust your stock market investment portfolio. You can also study our article on: How to make money online as a student – Top 10 ways to start earning today

Moving your Investments in Economic Recession Period

If you need the money within 1-3 years, you may want to invest in cash, bonds, a term deposit fund, or income-producing shares. If you have a three-year plan and a diverse inventory, do nothing. Investing your money, maintaining self-control, and avoiding your emotions are great ways to reach your financial goals.

Brighter Side of Recession

Even if the economy is in a slump, history suggests that they are usually followed by growth. The 2007 property market slump caused the 18-month "great recession" (Learn more about the Great Recession). After this economic recession, the United States saw its longest economic expansion ever. Comparatively, Pakistan's economy contracted in 2020 as well. By 2021, however, that figure had risen to 5%.