Recession. A word coming out of almost everyone’s lips, appearing on every newspaper and tabloid and tweeted all around the world. We are in the middle of an economic event and everybody wants to get involved in the conversation–myself included. Let’s untangle the word recession first. All definitions of recession come down to a significant decline in economic activities. The definition I prefer is recession is a significant decline of economic activities over an extended time period. Most economists agree to the period being two successive quarters. The change in GDP is the quantifiable measure of recession. As expected, the economy should grow perpetually, or that is what we hope for most of the time. But on other occasions, recessions are inevitable.
Recession has its causes which are not avoidable. Personally, I think one should prepare himself for recession rather than think of preventing it. Once you understand the causes, you get to understand the inevitability of recession. The global economy has felt the effect of the corona virus pandemic and the ongoing war between Russia and Ukraine.
The Central Bank of Kenya has increased the interest rates. High interest rates make it hard for folks to be liquid. Hence, lack of money available for investment and spending. Eventually, people become risk averse – afraid to invest. This trickles to the other cause of recession, which is consumer confidence. Consumer confidence in the economy decreases. Lack of confidence in investment and the economy leads to a recession. Private consumers are a key part of economic activities. When there is no confidence, consumers become uncertain of their financial ability in the future. Restricting their spending and thus reducing sales in retail shops. This eventually leads to manufacturers downsizing, leading to unemployment.
This lack of confidence creates a bearish market. Prices are going down and everyone is trying to stabilize their position by selling. Since people will be busy trying to be liquid to get through the recession.
First time Kenya went into a recession was in 2002 during the transition of the government. That’s as far as the records show. Since there is no record of quarterly GDP before 2000. The recent one was in 2020, during the Covid-19 pandemic. It is more likely we will have another recession soon or we are in one already. Like the saying goes,” Hope for the best, prepare for the worst.” Best way to do so is by managing your finances. Be ready for any economic cycle, thus enabling you to get through both the good and bad times.
A round of applause for your blog article.Thanks Again. Really Great.