• June 3rd, 2020

Recession: The bad and the ugly

It is without a doubt that one of the most talked about topics in the country at the moment is that of the state of the economy. Indeed, from social media to the bar, taxis, even the church, it has become common to hear conversation pertaining to the current economic state of the country. Within these conversations, one of the most commonly used words is recession! 

But what exactly is recession? A recession is a significant decline in economic activity that goes on for more than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. 

During a period of recession, GDP (Gross Domestic Product), investment spend, household income and business profits fall. On the other hand, unemployment rate, personal and business bankruptcies, foreclosures etc. rise significantly.  In general terms, a recession occurs when there is a widespread decline in spending. This decline can be a result of various events within an economy, such as a financial crisis. 

A recession has many attributes that can occur simultaneously that include declines in component measures of economic activity (GDP) such as consumption, investment, government spending, and net export activity. These summary measures reflect underlying drivers such as employment levels and skills, household savings rates, corporate investment decisions, interest rates, demographics, and government policies.

Recessions are not too strange to global economies, with most notable the great recession of 2008/2009. “The Great Recession” was a period of general economic decline observed in world markets during the late 2000s and early 2010s. Even though, the scale and timing of the recession varied from country to country, The Great Recession devastated labour markets and several economies of the world. It is reported that in the United States, the recession began in December 2007 and ended in June 2009. 
I have had some people ask me how long will it take for our economy to turn around? Being my humorous self, some of my responses have been “the recession in the great USA lasted a few years!” Yes, the USA, “the world leader”. 

As a direct result of The Great Recession, several African countries were affected primarily by reduced global demand and lower prices of commodities such gold, platinum, copper, nickel and of course oil. Countries such as Morocco and Egypt that had been experiencing high economic growth unfortunately experienced a great decline due to the great recession. 

Indeed, several countries of the world struggled for years beyond the 2000s, with Greece particularly suffering the longest recession of any advanced economy to date.  
It is important to note that though a country can be cleared from recession, there is an aftermath of the recession with plenty uncertainties. Greece, for example; struggled with several reforms and austerity measures post the great recession, which led to impoverishment and loss of income and property. 
Several businesses shut down with many international firms exiting the countries. Unemployment skyrocketed, the political system scrambled, money was short while the government struggled further with a debt crisis that lasted for years. Even though the country has managed to pull itself out of formal recession, Greece is still struggling to settle its billions of debts. 

According the to the International Monetary Fund (IMF), Greece will still be 12.8 percent poorer than it was in 2007 in 2023, which would put it on pace to get back to its pre-recession peak sometime around 2030 only. Indeed, a recession could last for years, with even more uncertainty of the aftermath.  

To an individual, perhaps the most notable signs of a recession in an economy are factors such as high unemployment rates due to job losses and lack of jobs being available in the market as a result of a reduced investment and spend. During recession, one observes several businesses closing down, retrenchments within the labour market, a slowdown in manufacturing orders and general production. 
Falling housing prices and sales of property is also another sign of recession. Foreclosures become common as homeowners loose equity, which forces a cutback in spending. Recession clearly carries an unfortunate somewhat “snowball effect”. 

In order to avoid a recession, Government and monetary authorities need to try and increase aggregate demand by increasing consumer spending, investment and exports. Cutting the interest rates to reduce the cost of borrowing will increase investment and consumer spending within the country. 

Governments can also respond to recessions by increasing government spending, decreasing taxation and the implementation of other expansionary macroeconomic policies. It is important to ensure financial stability during economic downtime, government intervention to guarantee bank deposits and major financial institutions can maintain credibility in the banking system therefore attracting investment as well.
For the individual, it is advised to “tighten your belt” and to not overspend. The moment one observes signs of economic downtime, prepare adequately by cutting costs, and making sure you still have some earnings. In addition, Save, create additional income streams, create emergency funds, settle your debts, diversify your investments and gain understanding - speak to a financial advisor and get the best advice for you and your family. 

The economy will always have its ups and downs, but with the right macro-economic measures in place, countries can avoid slipping into recession. 

*Inyemba Kamwi is a lecturer with the International University of Namibia (IUM). She is also the founder of Alketas Consultancy. 

Staff Reporter
2019-08-02 07:52:10 | 10 months ago

Be the first to post a comment...