The signs of a Recession are showing up - Are you prepared?

Read Time: 4 mins

Amid the pandemic of the coronavirus, we are all aware the economy is falling across all regions of the world and the world is currently under chaos and the economic downfall can be well explained by the healthcare issues we are facing. But the question remains, are we going to see a recession? A quick spoiler - this blog doesn't have a definite answer to that but it'll help you understand the probability of it happening over the next few weeks.

First of all, let's understand how and when do we officially term that a recession has come and who defines that?

A recession is a significant decline in general economic activity of a region. This macroeconomic term is typically recognized as two consecutive quarters of economic decline, this decline is reflected by GDP in conjunction with monthly indicators such as a rise in unemployment.
The National Bureau of Economic Research (NBER) is the one that officially declares recessions. However, the NBER defines a recession as a significant decline in economic activity that is spread across the economy, lasting more than a few months which is normally visible in real GDP, employment, industrial production, real income, and wholesale-retail sales.

Now as we can see a significant decline is clearly visible and the economies across all nations are declining. One other major factor of a recession is a bubble/false money that is created due to frauds, lack of understanding for valuation of certain commodities amongst the general public or any other factor likewise.
Let's understand in brief for what happened in the year 2000 and 2008, wherein the millennials saw the recession and passed through it. In the year 2000, the bubble that was created was the dot-com bubble. Since the internet was a very new thing, everyone was investing in internet-based companies without able to calculate the actual valuation of the companies, so it ended with an extremely high valuation for something that was worth pennies. Imagine buying a new toffee in the market for $1,000 because everyone else is buying it for the same price but after a few months you realize that its worth is $5, so what you and multiple others have done is, creating a bubble with large sums of money which is invested in something that is worth pennies. This when happens on a large as well as a distributed platform, it creates a bubble which is very difficult to contain and to stop it from bursting.
The same happened in the year 2008. The global financial crisis happened due to the housing bubble since the FED liquidated the loan, everyone started buying houses at prices that were 10 times of the actual price and this bubble, which, from an estimated, created a $4 trillion deficit, lead to the crash of the global economy.

Where are we with COVID-19?

I am not being pessimistic, just trying to add up a few numbers here. As you all know that the coronavirus pandemic has disturbed the routine of each and every individual whilst killing many. The healthcare sector, although working in full force, is not able to contain the same and is not able to create a Vaccine for time being. Also, the Vaccine seems nowhere near as usually, it takes around 18 months to develop a Vaccine. 

Since the number of cases is increasing day by day the solution to this is not anywhere in the visible spectrum. The government has started acting quickly to stop this from spreading and has allocated huge sums of money to this particular problem. I am not saying that the allocation was not needed but if you look at this from an economic end, you can see deficits being made. This money is printed out of thin air and will lead to economic downfall across regions. 

With the US allocating $2 trillion to fight the COVID-19, India allocating Rs. 1.7 trillion for the same. All these are creating a budget deficit and furthermore a bubble because no one knows how will this deficit sum, which has already crossed half of what it was in 2008, be recovered. 

The comments from Bloomberg Economists state that the evidence is mounting that march has marked the start of a deep global recession and the extent of the collapse is beginning to appear across the world in the trickle of economic data.

All in all, the signs for a recession are clear and so is the spread of this virus. The economy can be recovered over the next few years but right now staying at home and trying to be as productive as we can be, is the best we can do. Doctors across the world are giving their best, so let's listen to them and stay at home and the economy part we can figure out side by side.