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How to Prepare for Recessions: It's Time to Invest

4 months ago

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With many countries experiencing economic contraction and decrease in GDP due to the COVID19 pandemic, the third largest economy Japan has entered recession for the first time since 2015. According to data reported on Monday, the economy shrank by an annualized rate of 3.4 percent this quarter followed by a 7.3 percent plunge in GDP in the last quarter of 2019.

What is a Recession?

The economy is often said to have entered recession when there are two or more consecutive quarters of negative economic growth especially measured with Gross Domestic Product (GDP). Since the industrial revolution, many countries have experienced a growth trend in their economies. While this growth was a long-term growth, there have definitely been many short-term fluctuations and declines, like the one we are experiencing now with the pandemic are known as a recession.

Source : https://www.statista.com/chart/21747/japan-gdp-enters-recession/

Recession or Depression?

The global economy has definitely been impacted by this pandemic where many countries are experiencing contraction in their economic activities. The question we have to ask now is how long will it take for this recession to recover. Kristalina Georgiva, Managing Director of the International Monetary Fund (IMF) spoke on an interview with Reuters that “During the financial crisis ten years ago, part of the world managed to grow and pulled others up. Now, we all are in a situation of recession, almost with no exception, the growth is downwards” and predicted that the economy is unlikely to recover by 2021.

Some of the major economies are included in the 170 countries that Georgiva mentioned in the interview. Namely, the following economies are facing large contractions.

United States where Kevin Hassett, a former economic adviser at the White House, told CNBC that "You're looking at something like minus 20% to minus 30% (GDP) in the second quarter."

Japan where the Government announced its recession on Monday with two consecutive quarters of negative GDP.

China where it experienced negative GDP in decades.

United Kingdom where the National Institute of Economic and Social Research (NIESR) estimated that the growth contraction will be approximately 25-30%.

With the current pandemic, it is very difficult to predict when the economy will be recovered. Will this recession lead to a depression? At the moment there are no mentions of this recession becoming a depression. On a side note, the global crisis due to subprime mortgage that occurred between 2007-2009 was ranked as the second worst recession of all time and was named the "Great Recession". If this pandemic doesn't trigger a global economic crisis that is worse than the GFC in 2008, it is unlikely to become a depression.

How should we prepare?

Apart from cutting overhead costs the best way to prepare would be to find a side hustle. Finding a way to supplement your income from home is probably the most feasible thing you could do at this moment in time. Investing is one of the most accessible source to insulate your income. However in an unstable economic environment, investing may sound counterintuitive when the stock market is falling and everyone is panicking.

A good way to leverage this situation would be to trade on derivatives exchanges like MyCoinStory.com where you can capitalize on both the uptrend and downfall of assets. In other words, you are able to generate profit in a falling market. Wouldn't this be a good place to start preparing for the potential upcoming recession in your region?

   

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Published 4 months ago