World Economic Recession: Definition and Ways to Overcome It

Lately, you must have often heard the term recession, both in the mass media and in discussions. However, what is meant by an economic recession? An economic recession is simply defined as a deteriorating state of a country’s economy. Negative Gross Domestic Product (GDP), increased response, and negative economic growth for two consecutive quarters mark the economic recession.

Definition of World Economic Recession

According to the National Bureau of Economic Research or NBER, an economic recession is a significant reduction in all economic activity that lasts for several months.

The global recession is a state of economic deceleration and decline that affects the world. According to the International Monetary Fund (MIF), the global recession is indicated by an increase in the world’s Gross Domestic Product (GDP) based on world macroeconomic indicators, including population responses, capital flows, production in each industry, world oil consumption, and stock trading.

Simply put, a decrease in consumption lowers the level of production. This affects the sales aspect and the number of jobs as well as reduces the income of one industry, which can affect the income of other related industries. A decrease in consumption disrupts the sales aspect, thereby reducing production. Such a circle occurs continuously.

What factors cause an economic recession?

1. Inflation

Inflation is a process of continually rising prices. It is actually not a bad thing, but excessive inflation is very dangerous as it will lead to a recession.

2. Excessive Deflation

While excessive inflation can cause a recession, deflation can cause worse. Deflation is a condition of falling prices from time to time, lowering prices.

Business owners are the ones most affected by inflation. When individuals and business units stop spending money, the price economy destroys.

3. Asset Bubble

The asset bubble is one of the factors causing a recession. According to Investopedia, an asset bubble is an economic cycle in which the value of an object increases rapidly, such as the price of an asset or property.

Like a bubble, the objects with rapidly increasing values will ‘burst’ over time. A high price, at some point, will fall to a very low price. This bubble is certainly not a good thing as it can cause huge losses, especially for the macroeconomy.

4. Sudden Economic Shock

Sudden economic shocks can trigger recessions and various serious economic problems. The large number of individual and corporate debts causes their repayment costs to rise. The repayment costs will continue to increase to the point where they can no longer pay it off.

How to Overcome and Anticipate a Recession

1. Prepare an Emergency Fund

Everyone must prepare an emergency fund or savings for the future. Therefore, when an economic recession occurs, you will not face difficulties. An emergency fund helps maintain the financial stability of companies and households in the event of termination of employment and other unwanted things.

2. Earn Extra Income

To maintain economic stability, you can choose one of the online jobs available widely lately. The extra income can help secure your emergency fund for future needs while preventing the impact of an economic recession.

3. Minimize Expenses and Debt

The next way to deal with an economic recession is to minimize spending on unnecessary goods. To implement this step, you can start by making a financial priority scale.

Try to use your budget to pay off debt first and avoid using a credit card when shopping. Credit cards will usually increase expenses.

4. Take Out Insurance

If you do not have enough emergency funds, insurance can help overcome financial shortfalls due to unwanted things. Therefore, choose the right insurance as an investment for you and your family as well as a safety tool to face an economic recession.

5. Invest Actively

Basically, investing can generate huge profits. In critical conditions, investments can reduce the risk of business bankruptcy. However, before investing, you should re-check the value of the product you are going to invest in.

Common investments for society are gold, stocks, and mutual funds. You can choose one of them or if possible, use several financial platforms to stabilize your finances in times of crisis.