Is a recession imminent?
A recession is (according to good, ol’ Wiki): “a business cycle contraction when there is a general decline in economic activity”.
Now a lot of people are shouting and screaming that a recession is inbound so let’s explore the reasons why such statements are being proclaimed…
You will have noticed and perhaps even got a huge fright from your weekly grocery bill, as the price of food has shot up. Rising food prices have been caused by supply issues, exacerbated by covid-19 initially and now the war between Russia & Ukraine (one of the largest wheat and fertiliser exporters).
Furthermore, if the food price hike didn’t catch your attention then your energy bill certainly will. This has also gone up quite considerably of late and we haven’t even approached the chilly, winter months yet(!) so the worst of it is yet to come. Yay.
When the price of essential goods and services increases then most of one’s pay cheque will go towards that, leaving less to spend on other more luxurious items.
As consumer spending decreases, money velocity declines (less money flowing around the economy), less revenue for businesses and consequently, less economic activity. Once this starts affecting a country’s GDP (gross domestic product) output then this is a strong indicator for a recession.
Evidence that shows people are struggling is the increase in credit card debt and, more worryingly, ‘buy now, pay later’ schemes that can put individuals into a vicious debt spiral.
Now consider all this with the fact that we have raging inflation and in response to this, the BOE (Bank of England) is now slowly raising interest rates…..it doesn’t look good.
Raising interest rates generally leads to people taking out less loans and borrowing less money from the bank, because it will cost you more to pay the lender back.
Less borrowed money, less money velocity and less economic activity. So referring back to our trusty definition that I alluded to earlier, all these reasons that I’ve mentioned above does support the opinion of many that we are in fact due for a recession.
When this will happen, of course, is uncertain but best to be ready for it just in case.
Be sure to have a “monetary cushion” or buffer in place and what I mean by that is an emergency fund – savings for a rainy day.
For more info on what I mean by this, please read my blog post on: Emergency Fund.
In order for the neurones in our brains to function optimally, they require minerals, such as: potassium (baked potato skin/bananas), sodium, zinc, calcium (broccoli), selenium (brazil nuts), and Magnesium, so keep your mind fuelled by consuming these mineral-rich foods.