16 January 2023
Dave Ikiedei Asei
WHAT IS ECONOMIC RECESSION (RETRACTION)
Economic recession could be defined in several ways, but for our purpose in this article we look at it from the ones below: It means -
A period of temporary economic decline marked by a decline in GDP over two successive quarters and a corresponding reduction in trade and industrial activity.
It can also be caused by financial panics (like the one that preceded the Great Recession), economic shocks (like a surge in oil prices), or abrupt changes in economic expectations. It is also known as two consecutive quarters of negative economic growth
WHAT ARE SOME STEPS TO TAKE BEFORE AND DURING A RECESSION?
These issues are clarified by studies of the Great Recession in research and case studies. They support conventional wisdom in some situations while questioning it in others. The four topics of debt, decision-making, labor management, and digital transformation are some of the most intriguing discoveries. The overarching theme in every area is that recessions are high-pressure exercises in change management, and a company needs to be adaptable and ready to change to successfully navigate one.
There are a number of different policy options that governments can use to manage an economy during a recession. These include
PREPARATION:
According to the Bain analysis, "few established contingency plans or thought through alternative scenarios" among the governments and businesses that stagnated in the wake of the Great Recession. "They went to survival mode when the slump arrived, making significant cuts and acting defensively." Many businesses that barely scrape by during a downturn take longer to recover and never really catch up.
DECENTRALIZATION AND DIVERSIFICATION
What actions should a business take in the event of a recession as well as how should it get ready for one? These issues are clarified by studies of the Great Recession in research and case studies. They support conventional wisdom in some situations while questioning it in others.
FISCAL fiscal policy, measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures. Fiscal measures are frequently used in tandem with monetary policyto achieve certain goals.
Governments and firms can increase spending or decrease taxes to stimulate demand and boost economic growth.
FINANCIAL POLICY:
A country's central bank uses a set of instruments called monetary policy to regulate the total amount of money in circulation, foster economic expansion, and implement measures like adjusting interest rates and altering bank reserve requirements.
The Federal Reserve Bank of the United States carries out monetary policy under a twin mandate to maximize employment while containing inflation.
KEY LESSONS
A nation's overall money supply is managed by monetary policy, which also aims to promote economic growth. Adjusting bank reserve requirements and changing interest rates are examples of monetary policy strategies. It is conventional to categorize monetary policy as either expansionary or restrictive. The Federal Reserve frequently implements monetary policy using three methods: reserve requirements, the discount rate, and open market operations.
The country’s central bank can lower interest rates to encourage borrowing and investment or use quantitative easing to increase money supply to stimulate the economy.
STRUCTURAL REFORM:
Governments can implement policies to increase the long-term growth potential of the economy, such as deregulation, labor market reform, and education and training programs.
WHERE CAN GOVERNMENTS GO TO POWER GROWTH IN THE ECONOMY?
Most economists agree that governments are necessary to ensure that markets operate effectively through enforcing contracts, resolving insolvencies, connecting businesses to the electrical grid, and other such actions.
Every year, the World Bank publishes a ranking of how effective governments are; Governments in many nations make it difficult to conduct business due to their policies we have discussed above.
INTERNATIONAL COORDINATION:
Countries can work together to address the economic downturn through coordinated policy actions, such as fiscal stimulus and monetary policy measures.
It's important to note that the best course of action will depend on the specific circumstances of the recession and the country or firm in question, and may involve a combination of different policy measures as outlined above.
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