In the wake of the global coronavirus pandemic, a recession could be mere months away. How can the world avoid a recession? By working together, policy makers from every nation can employ smart strategies to minimize the effects of an economic downturn. This article will discuss how the world economy can use sound tactics to keep economies stable, and even prosper in the face of changing economic conditions.
1. Defining Economic Recession
An economic recession is a period of prolonged economic decline. It is defined as a significant decline in economic activity spread across the entire economy, lasting longer than a few months. _Recession_ has become a widely recognised term after the global financial crisis of 2007-2008, but it is by no means new. This downturn has a huge impact on the way we live our lives – from sudden job losses, to difficulty accessing finance for business and private activities.
Recessions can be characterized by:
- High unemployment – meaning an increase in the number of people without a job and trying to find one.
- Declining economic output – reflected in decreases in retail sales, industrial production, and personal income levels.
The two indicators are closely linked, with high unemployment rates often leading to decreasing output.
2. Mitigating the Risk of Recession
There are several actions that individuals and businesses can take to mitigate the risk of recession. Foremost among these is to be aware of and monitor changes in the economy so that appropriate decisions can be made in a timely fashion.
For individual investors, this could mean reducing investment in stocks and instead, focusing on more secure investments in real estate or bonds. Risk management also means avoiding taking on too much debt, cutting unnecessary expenses and maintaining a healthy level of savings. To safeguard businesses, staying on top of capital flows, customer feedback and credit flows can help identify any potential weaknesses before they become issues. Additionally, developing a proper contingency plan for downturns can help if the worst case scenario does occur.
- Monitor Economic Changes
- Reduce Investment in Stocks
- Avoid Taking On Unnecessary Debt
- Maintain a Healthy Level of Savings
- Stay On Top of Capital Flows, Customer Feedback and Credit Flows
3. Influences of Recession on Employment and Growth
The Great Recession of 2007-2009 has left several longstanding impacts on the global economy. In the wide-reaching realm of employment and growth, there have been a number of tangible effects.
Firstly, millions of people had their jobs taken away from them. From factory workers to merchants, every industry has seen a huge reduction in job growth. This has in turn led to a slash in wages, leaving many families in difficult financial situation. In addition, unemployment rates are still considerably high, creating strong pressure on households.
Secondly, business growth has not been able to reach its historic heights since the recession. Companies have been forced to downsize or keep their budgets to a minimum, resulting in fewer openings or promotions within their ranks. This has had a knock-on effect, as smaller businesses usually depend on larger companies’ thriving to generate demand.
The Great Recession has had a significant negative impact on employment and growth, and its aftereffects must still be dealt with.
4. Strategies to Avoid Recession on a Global Scale
Supporting Sustainable Investment
There needs to be a focus on long-term investment that shows a real commitment to the economy, rather than focusing on short-term gains. Sustainable development investments include those that promote economic activities that consider environmental and social impacts. Governments should consider investing in renewable energy, green infrastructure, and transportation projects, as these investments create sustainable employment opportunities. This type of investment also encourages business growth and innovation, as these investments tend to have more favorable long-term returns than short-term focused investments.
Regulating Financial Markets
Governments need to regulate financial markets and work on strengthening international financial systems to provide more secure modes of operation. This includes introducing better regulations such as increasing capital buffers, introducing meaningful banking reforms, and implementing rigorous stress-testing. Additionally, promoting open banking systems with more transparency and integrated banking systems can help better manage global liquidity and reduce pricing volatility. By creating effective regulations, financial institutions are better able to manage risk and protect the overall economy from recession. As we face an uncertain economic landscape, the future of the world economy is still unknown. However, if we take proactive steps today, it could be possible to avoid an impending recession. By utilizing a range of corrective economic policies, current and future generations can create a more stable and secure economic future. Together, we can ensure the global economy remains healthy and prosperous.