Recession Fears…and High Savings Rates
The specter of recession threatens many economies of the world in varying proportions, given the many indicators imposed on the current scenario, starting with slowing economic growth and declining purchasing power of the people, this has led to weak movement in the markets, which is also reflected in the work of institutions results and stock prices.
This is in addition to the sharp changes in the labor market with the continuous wave of “layoffs”, and the crisis faced by major industries such as the real estate industry at the same time as the poor financing channels.
The latest report released by the World Bank shows that against the background of rising global interest rates, global economic growth has slowed down sharply, and the risk of financial stress in emerging markets and developing economies has increased. According to the World Bank’s latest “Global Economic Prospects” report.
- Global growth is expected to slow to 2.1% in 2023 from 3.1% in 2022.
- In emerging markets and developing countries outside China, growth is expected to slow to 2.9 percent this year from 4.1 percent last year.
The specter of recession still looms
In this “suffocating” atmosphere, while a state of “uncertainty” dominates the global economy, what can be done to avoid as much as possible the impact of any possible recession, be it mild or severe Recession Recession?
Of course, the answer will vary depending on the nature of each country’s specific economic situation, but in general, a general set of precautions is usually recommended in the face of any scenario associated with the specter of recession.
Scott Latham, a professor at the University of Massachusetts Lowell who specializes in strategic planning and business development, offers a general idea of the recession and how it affects people’s lives, as well as a set of recommendations on Tips for trading during a recession for individuals and institutions, and talks about the US as the world’s largest economy and how it views these threats:
- People need to realize that an economic slowdown is possible and it will have a direct impact on them.
- The balance in the labor market is likely to shift from the interests of employees to those of employers, or at least return to balance, with large and immediate implications for business.
- People have to be smart about their career decisions (keep working as long as possible).
- Unfortunately, as interest rates rise, many factors such as home prices and mortgage rates will “get out of hand.”
- People should start developing skills for emerging new technologies.
- A recession typically follows a sharp increase in economic activity. “Be prepared and acquire marketable skills.”
Conflicting Economic Indicators
Given conflicting economic indicators on whether a recession is on the cards in the near future, Latham said: “Looking at the recent economic outlook in the U.S., I’m not inclined to say that a recession is likely here, however, I do know that other regions, such as Central Europe, North Africa and Southeast Asia may experience a recession.
The technical definition of a recession is a sustained contraction in economic activity, usually for as long as two consecutive quarters.
However, American scholars also pointed out that the “instability of the current economy” makes it difficult to determine that specific parts of the economy are in a state of balance. The current US economy is like a snowball, precarious, snowflakes fluttering, and then settled.
In general, he explained that in these cases, consumer confidence, business investment and job creation are not only in a state of volatility and change, but also in a state of contradiction, meaning that these elements are in conflict and competition. . Therefore, this shows that the current economic signal is difficult to understand and read properly.
Therefore, American scholars pointed out:
- Recessions are structural, meaning that problems with the underlying economy are exacerbated by uncertainty.
- Examples include: the Great Recession caused by speculative real estate market mechanisms, and the downturn experienced by technology companies (in the early 2000s) due to the industry’s speculative business models.
- In both cases, there were negative economic fundamentals that led to instability, after which the human element entered illogically, fueling panic and uncertainty in the economy.
- Typically, these two factors—negative fundamentals and irrational human behavior—combine to trigger a recession.
Recession threat…could have been avoided
As for the current situation, he pointed out that the current threat of recession could have been avoided had different measures been taken, and emphasized the scale of the economic stimulus measures implemented due to the corona pandemic, which is the case in many countries around the world. One of the measures taken to protect the economy during the pandemic), combined with the low interest rate policy pursued by the U.S. central bank over the past decade, has fueled U.S. inflation. With current interest rates rising and future expectations rising, institutions and companies are getting worried and starting to reduce their investments in equipment, labor and other things.
Regarding the case in the United States, a professor at the University of Massachusetts Lowell also attributed some responsibility to the current US government led by Biden. That’s because it pumped money into the economy without heeding the warnings of economists. These massive monetary and fiscal policies may have contributed to higher inflation and increased market volatility, he argued.
He continued: The US economy is addicted to cheap money (referring to low interest rates) and is unsustainable…I’m amazed we’ve come this far without feeling any pain…and then Corona A pandemic has hit the world and we are now in a state of imbalance. This is a once-in-a-lifetime pandemic, but we would be better off if we had raised interest rates over the past decade.
- In a research note on Tuesday, Goldman Sachs downplayed the chances of Washington entering a recession next year, saying those chances had “become lower than expected,” especially after the decision to raise the debt ceiling.
- But on the other hand, Bloomberg quoted JPMorgan Chase & Co. CEO Jamie Dimon last week, warning what he said was “a huge economic risk looming” and saying that given those risks, “I will accept a recession. “Goldilocks was delighted. “
The impact of the recession on people’s lives
In light of the likelihood of a recession, the UMass Lowell professor spoke about the impact of these conditions and economic conditions on ordinary citizens in a statement to the Sky News Arab Economy website, saying:
- Low- and middle-income groups will feel the effects of the recession more than high-income groups.
- The biggest impact will revolve around job opportunities; the labor market will narrow in the coming months and wages will start to fall, making the personal financial situation of these individuals more difficult.
- Signs of layoffs and mass layoffs are beginning to emerge.
- Some geographic areas will be more affected than others.
Regarding the impact in certain areas, take the United States as an example, with its economy diversified and dependent on various industries such as financial services, healthcare, life sciences and technology, Boston may be affected. Compared with Michigan, which relies heavily on consumer goods-related industries and the auto industry, the impact is small.
Given the data, while the UMass Lowell professor who specializes in strategic planning and business development doesn’t know for sure whether the U.S. economy is headed for a recession, he said he wants to be optimistic after a difficult time in recent years. Finally, he does not want a recession or even a period of equilibrium inflation, arguing that:
- There will be a huge explosion of innovation in fields such as life sciences, artificial intelligence, robotics and information technology, which will drive economic growth.
- However, there are factors working against this growth, such as political tensions, the impact of the COVID-19 pandemic, and events in Ukraine.
- As a result, he expects a slight recession is possible, but he does not foresee a major recession like the one in 2008.