8 economic recession consequences and the solutions

Do you want to learn about economic recession? I hope the answer is yes. So keep reading. In todays blog, I will guide you on the 8 economic recession consequences and the solutions to it.

An economic recession is occured by a slowdown in economic activity such as a decline in national average income, employment investment expenditure, productive capacity, business profits and public income.

Inflation is largely responsible for the economic downturn. Inflation is a decrease in real income that occurs by spending the same amount of money buying fewer goods than before. One of the main reasons is the increase in money supply compared to goods or the shortage of foreign remittances. An economic recession occurs when inflation increases.

According to the NBR, an economic recession is when there is a gradual decline in GDP, real income of a person, and industrial output across a country for more than a few months. An economic recession causes prices of various goods and services to rise but real income remains the same.

Reasons behind Economic recession

There are various causes of economic recession. Some economists cite economic, financial and psychological disruptions as the cause of economic recession. They claim that geopolitics is largely to blame.

Also, there are several other factors that are responsible for the economic recession including increase in fuel prices, adequate remittance deficit, overstocking of products in the market, epidemic outbreak, natural disaster, decrease in GDP, increase in unemployment, high interest rate which decrease in investment due to having low capital, consumer mindset (If the economic situation worsens, this mindset reduces purchases from stores.

One person’s expense is another person’s income. Roughly 70% of GDP depends on consumer spending.), decline in real income, political unrest, reduced production capacity (Demand is higher than stocked goods), global war, economic inefficiency, foreign currency laundering (Every year 7.5 billion dollars is smuggled out of this country), taking loan from international organizations more than required.

As an example, the central bank’s reserves are $39.49 billion in July 2022. There are two reserve accounts of the central bank. One is gross account and other is net account.

Gross Account

The total accumulated reserves are not fully usable. Because dollars are already invested in different sectors or projects. It is not possible to get back what you want. For example, the amount allocated for EDF (Export Development Fund) is 7 billion dollars which is spent on export of goods. Basically various exporters get loans from this fund.

200 million dollars are allocated for GTF (Green Transformation Fund) which is used to import spare parts or necessary goods for manufacturing companies or exporting companies. Besides, money is invested in various projects. It is impossible to get back the money used in these sectors or projects.

Net Account

Net account is the usable reserve which the state is able to use for the needs of the state. If calculated from the above example, the 8 billion dollars spent on EDF, GTF and various sectors and projects cannot be spent on any state work. If used, import export or project may be stopped at any time.

What happens due to economic recession

Economic recession leads the country to bankruptcy and affects people’s daily life. Also the ways in which people are affected are discussed.

1. Economic recession causes the real income of people to fall. Prices of subsistence goods rise. Notable among these are fuel, food, clothes and other items.
2. Economic recession raises the possibility of job losses. Or there is a problem in getting salary. Apart from this, the possibility of new employment is less.
3. It directly affects the country’s GDP and GNP.
4. Import of necessary parts or goods becomes impossible due to lack of foreign currency. As a result production in the country is hampered.
5. Many overseas workers who work as expatriates return to the country due to the economic downturn. This creates unemployment which has a direct impact on the GNP.
6. Foreign investment gradually declines.
7. Due to the energy crisis, export activities in the industrial sector are disrupted. The garment industry is particularly threatened.
8. Due to economic recession, commercial bank transactions are decreased. As a result, banks are threatened to be shut down.

Steps to take for economic recession

One of the prerequisites for a country’s economic prosperity is to enrich its reserves. To enrich the reserve we can adopt the following methods.

1. Increasing export earnings and reducing import costs.
2. Collecting foreign income in the right way (The way of sending foreign currency should be made easier for expatriates), money laundering through 3rd party or outsider should be prevented, and foreign currency smuggling should be stopped.
3. Import of luxury goods should be reduced.
4. Those who hoard goods unnecessarily to make an extra profit should be brought under punishment.
5. Skilled manpower should be developed and work oriented education should be implemented. Skill based experienced people to be sent abroad (For example: Doctor, Engineer, Imam, Scholar etc. These experienced professional people earn more wages than common laborers which will enrich our foreign exchange reserves.).
6. Foreign exchange expenditure should be reduced from reserves.
7. The people should be encouraged to produce those imported products which can be produced in the country.
8. We must be frugal in our use of fuel (imported oil, and gas).

Conclusion

Dear reader, we have come to the end of this informative blog post. We hope, this blog post was helpful for you to learn about the 8 economic recession consequences and the solutions. If you liked this blog post and if the blog post has benefitted you, then please don’t forget to leave your valuable review about this blog post below.