Many of you had asked us ‘what is an economic downturn’ and how will it affect us? An economic downturn is simply a general slowdown in economic activity. It could be caused by various things, but most recessions are caused by a combination of factors.
It can happen in a specific region (e.g. the Asian financial crisis in the late 1990s) or on a global scale (e.g. the global financial crisis in the late 2000s). Or, it could be something more localized like the current economic downturn in Alberta due to the decline in oil prices.
The main characteristics of an economic downturn include rising unemployment, falling share and house prices, low consumer confidence, and declining economic growth. All of these factors can have a major impact on our everyday lives.
In this article, we’ll like a shine a light on economic downturns, what causes them and how you can survive one.
An economic downturn doesn’t have to be all doom and gloom. There are ways to survive a recession and even come out ahead.
Let’s dig in and learn more about economic downturns.
What is an Economic Downturn, Really?
An economic downturn is basically when economic growth slows down or even contracts for a sustained period of time. No one knows how long a downturn will last, but most economic activity usually bounces back within a year or two.
In order for an economic downturn to be classed as a recession, growth must fall for at least six months. And, in recent months, especially in the US, economic activity has been slowing down.
According to reports from banks and economists, the United States economy may be on the verge of a recession next year (2023) as a sudden bout of pessimism batters financial markets, which have continued to plummet today, July 7, 2022.
How Do Economic Downturns Affect People and Businesses?
The main effects of economic downturns are:
- Rising unemployment: As businesses start to lay off workers, unemployment rises. This can have a knock-on effect on consumer spending, as people have less money to spend.
- Falling house prices: This is usually caused by a combination of rising unemployment and falling consumer confidence. As people become less confident about the future, they are less likely to buy houses. This can lead to a spiral of falling prices and rising unemployment.
- Low consumer confidence: This leads to people spending less money, which in turn leads to businesses making less money and laying off workers. Low consumer confidence can also lead to falling house prices.
What Are The Cause and Effects of an Economic Downturn?
There are various causes of economic downturns, but they can broadly be divided into two categories:
Causes of economic downturns
There are many potential causes of economic downturns. Some are internal to a country or region (e.g. a fall in commodity prices) while others are external (e.g. a financial crisis in another country).
Some of the most common causes of economic downturns include:
- A fall in demand for a country’s exports
- High-interest rates
- A decrease in business investment
- A rise in unemployment
Effects of economic downturns
The effects of an economic downturn can be wide-ranging and long-lasting. They can include:
- Rising unemployment: As businesses lay off staff or close down, unemployment levels increase. This can lead to economic hardship and increased crime rates.
- Falling house prices: A drop in property values can cause people to lose money on their investments and make it harder to get a mortgage.
- Low consumer confidence: When people are worried about losing their job or their home, they spend less money. This can lead to businesses making less profit and having to lay off staff.
How to Survive an Economic Downturn
If you find yourself in the middle of an economic downturn, there are some things you can do to help yourself survive:
Cut back on your spending
Review your budget and see where you can cut back on your expenses. This will help you save money and weather the economic storm.
Find Deals and Discounts
Take advantage of sales and discounts. This is a great time to stock up on essentials like food and clothing.
Boost your income
If you can, try to get a pay rise or take on some extra work to increase your income. This will help you stay afloat during tough times.
Make your money work harder
Invest in things that will hold their value during an economic downturn, such as property or gold. This will help you protect your wealth during tough times.
Do Not Panic, It Will Be Okay
An economic downturn can be a difficult and stressful time, whether you are a consumer or a business owner. But it is important to remember that these periods of an economic slowdown are cyclical. They eventually come to an end, and the economy will start to grow again. So, try not to panic and stay positive. Things will eventually get better.
Here are 5 Companies That Started During the Recession
Even during economic downturns, there are companies that continue to do well. Here are seven examples of companies that started and thrived during the recession:
- Disney launched in 1929 during the Great Depression and is now one of the world’s most valuable brands.
- FedEx began operations in 1971 during an economic downturn and grew to become an essential part of global trade.
- Microsoft was founded in 1975 during a recession and is now the world’s largest software company.
- Apple was founded in 1976 during a recession and is now the world’s most valuable company.
- Amazon was founded in 1994 during a recession and is now the world’s largest online retailer.
- Airbnb was founded in 2008 during the Great Recession and is now the world’s largest provider of short-term lodging.
- Warby Parker was founded in 2010 during the Great Recession and is now one of the world’s most valuable eyewear brands.
As you can see, economic downturns don’t have to be the end of the world. In fact, they can be the perfect time to start a business. So if you’re feeling entrepreneurial, don’t let a recession stop you from chasing your dreams.
Of course, starting a business during a recession is not without its challenges. The main challenge is that there is less money to go around. This means that you will have to be more frugal with your spending and make sure that every dollar counts.
The key to surviving an economic downturn is to have a plan. You need to know how you are going to cut costs, increase revenue, and weather the storm. By having a plan, you can make it through the tough times and come out to the other side stronger than ever.