Feels Like a Recession
October 2024 – As the global economy faces challenges, many people are feeling the pinch, even if we aren’t officially in a recession by technical terms. Here’s 7 reasons why a shrinking economy can mimic a real-life recession for many.
*Rising Costs*
One of the primary reasons a shrinking economy feels like a recession is due to rising costs. When prices for goods and services increase, people’s purchasing power diminishes. This means that even if wages remain the same, the cost of living goes up, making it harder for individuals and families to make ends meet.
*Higher Interest Rates*
To combat inflation, central banks often raise interest rates. While this can help slow down inflation, it also makes borrowing more expensive. Higher interest rates can lead to increased costs for mortgages, car loans, and credit cards, putting additional financial strain on households. Especially those households that are categorized within the middle and working classes, as they’re the least likely to have enough funds to absorb an extended period of high rates and prices.
*Job Insecurity*
Even if the overall economy isn’t in a recession, certain industries may be caught off guard and experience downturns. This can lead to job losses or reduced hours for workers in those sectors. When people see layoffs happening around them, it can create a sense of insecurity and fear, like what is felt during a recession.
*Stagnant Wages*
In a shrinking economy, businesses may struggle to maintain profitability. As a result, they might freeze wages or offer smaller raises. When wages don’t keep up with inflation, workers effectively earn less, contributing to stressful economic related impacts and a feeling of a recession.
*Reduced Consumer Spending*
When people feel uncertain about their financial future, they tend to cut back on spending. This reduction in consumer spending can lead to a slowdown in economic growth, creating a cycle where businesses earn less and may need to lay off workers, resulting in reduced productivity rates.
*Psychological Impact*
The psychological impact of a shrinking economy cannot be underestimated. Constant news about economic challenges, layoffs, and rising costs can create a sense of doom and gloom. This collective bombardment makes people feel anxious about what could possibly unfold. Creating speculation around the very thought of living through a recession, even if the technical indicators don’t necessarily support the notion.
*INFLATION*
High Feds Fund rates used to reverse the affects of inflation, can have an ever-lasting grip on the economy by moving it up or down to reach a projected target. This can create financial uncertainties leading to economic impacts on individuals and businesses creating a tightening scenario. Leading both to curb behaviors towards future spending projections and causing a spiraling downside effect.
When a shrinking economy may not meet the technical definition of a true recession, the effects on everyday life can be very realistic for a lot more than others. Inflation causing rising costs, higher interest rates, job insecurity, stagnant wages, reduced consumer spending, and the psychological impact all contribute to the influences of living through a real-life recession.
