“The Eurozone has been confirmed as entering a ‘technical recession’ after the region shrank by 0.1% in Q1 2023, marking two consecutive quarters of contracting GDP.” (Source: Economic Times)
Historically, we know that a recession spreads like wildfire across geographies because of the intertwined nature of global economies. The last time the global economy showed signs of recession was back in 2008; a recession that India largely avoided to be affected by due to the strong presence of public sector banking. But, what does the oncoming recession mean for India – and by extension for young investors in India?
Let’s find out!
What is Recession?
Imagine the economy as a giant wheel that keeps turning. Sometimes, this wheel spins really fast, and other times, it slows down. What happens in each of these scenarios?
Everyone gets stuck – they are making no progress at all in the slow times, much like a slow climb up a steep hill! There might be a need for emergency rescuers, and there is a sense of urgency and panic in the whole situation. So, when this metaphorical economy wheel slows down, it has repercussions in the real world. People have to slow down and be more careful with their finances and spending because they don’t know for sure how long they will be stuck here! The job market starts to look bleak; some people might even lose their jobs – and there is a sense of urgency and panic in the whole situation – which is best described as a recession.
This is a roundabout (See what we did there… The wheel thi… Never mind.) way of saying that a recession is that phase when the economy of a country is not doing too well. Businesses, financial institutions, investments, and investors in a country are all affected by a recession.
How does the recession affect the economy?
Let’s first look at the various effects of recession on the economy –
These are the major ways in which a country’s economy is affected by a recession. If you’re a keen observer, you will notice just how interlinked these six factors are. The recession sets off a bit of a domino effect that can potentially tumble the whole economy.
How does the recession affect the investor?
Recession For the Investor: In a Nutshell
We want to touch upon 4 key ways in which the recession of a country will have a direct impact on you – the investor in its market –
Recession sounds scary, and it probably is a little – but like we said – the economy is a wheel! Whatever is going down is coming back up – as long as you’re in the know and have contingency plans in place for your investments, you’re poised to survive!