Recession happens when the economic output of a country shrinks for two consecutive quarters. That’s typically a sign that many people are feeling a pinch, because when business slows down, it usually means there are less jobs to go around and that paychecks may be smaller. This can also lead to higher inflation, which could make it more challenging for consumers to keep up with rising prices if their wages don’t increase.
A recession can be caused by a wide variety of things. One reason is overheating economies, which often happen when a country’s economy grows too fast and it can’t sustain itself. This can lead to higher interest rates, which discourages businesses from investing and expanding and prompts people to cut back on spending.
Unexpected economic events can also trigger a recession, such as wars, pandemics or international financial collapses. These shocks can create a climate of uncertainty and confusion, making people more cautious about spending.
Another common cause of recession is when the debts of corporations and households become too burdensome to manage. When people start defaulting on their loans, it can depress the overall economy.
It’s impossible to predict when a recession will occur or how long it will last, but there are steps you can take to prepare for a downturn, like adding to your emergency savings and maintaining a strong professional network in the event you get laid off. You can also diversify your investments and consider strategies such as dollar-cost averaging, which involves investing a fixed amount at regular intervals to reduce the impact of market volatility.
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