A Recession is Coming! - What to expect, when you are not expecting?

A silent sea houses a ‘Leviathan’ deep in its womb, luring the prey by disguising the security. A recession in economy is just like this ‘Leviathan’ as explained by Hobbes, shrouded under the ‘so-called normal’, but a little crack in the shield is enough to unchain this monster, engulfing all at once. The parallel between the ‘leviathan’ and the ‘economic recession’, is indeed a metaphorical representation but an ideal way to make you understand how recession exactly works.

To anticipate a recession, it is essential to put the intuitions of all the leading economists on the watchdog. The prominent indicators of recession are a decline in the gross national product for two consecutive quarters, a 1.5% decline in real GNP, a more than quarter decline in the manufacturing sector, a reduction in jobs in more than the 75% and two-point rise in the unemployment to the level of at least 6%.

Recession in the new economic connotation:

The change is the constant, but the rapid change is what explains the economies at best. In the age where ‘data is the new gold’, industries are seeking artificial intelligence more and more to their disposal. It is imperative on our part to understand if the recession is really hiding in the horizon, where would all the expected ripples be seen?

In between the YES, NO and PERHAPS:

The comical nature of the leaders in the economic giants has lost the credibility of their words. The lame rhetoric and the pseudo references cannot be assuring and have almost no prominence over the facts and figures. As Benjamin Disraeli said and I quote, “To be conscious that you are ignorant of the facts is a great step to knowledge”. So what are we exactly ignoring here? The first hint towards the recession is to look for the slowdown in the economy in the two consecutive quarters and the possible area of its impacts. If the recession hits today, what would be the possible impacts of tomorrow and where? NBER economists analyse the trends in the real income, the employment sector, the industrial production, the slump in the wholesale and the retail baskets and are finally moving towards the monthly GDP estimates.

The possible and plausible causes of the would-be recession:

The new tariff duel between the USA and China and the volatile global oil market are sseen as the potential triggers to the recession. A prism analysis of International politics is needed here. The two economic giants in the tussle result in the cautious consumer spending at both ends and China’s growing reliance on the debt-fueled growth. The manufacturing sector in the Chinese economy which was in the ‘middle-income trap’ earlier, is now seeing a less output growth and the USA’s manufacturing sector is already facing its own version of the mini-recession, an example of which could be the freight industry. The ‘Brexit’ has already kept the investors on edge, but the real grotesque face of it is that of a “no-deal Brexit which could cause the U.K’s economy to decline by 3.5%. When a non-economic brain is put to the task of bringing a solution, the expected answer comes out in the form of job cuts and fewer people on payrolls.

What could happen?

The employment which seems to be at the peak can be misleading. Unemployment can be low, but underemployment can be high. Automation and AI have a job-destroying potential and in the time to come it might clear out 48% of the ‘blue and the white-collar jobs’, as substantiated by the Pew Research. The relation between the two is, if recession happens, it will certainly accelerate the pace of this displacement process and increase the need of the technology inspired restructuring of the economy. The expected trajectory of the chain reaction is that of entrepreneurs having one foot in the puddle, as they may see no investors have their back. Real estate value may fall, and the possibility may arise that if one is losing his job, he might lose his home too.

Future investments can also see a rough night as evident from the yield curve. Long term bonds can be a benefactor, but short term yield may not give the expected results. The parents thinking of saving more for their child’s future might not have ample money at their disposal.

Ray Dalio, American billionaire investor, hedge fund manager of one of the world’s larger Hedge Funds, and philanthropist says “In paradigm shifts, most people get caught overextended doing something overly popular and get really hurt. On the other hand, if you’re astute enough to understand these shifts, you can navigate them well or at least protect yourself against them.”

Yes, there will always be some turbulence in the economy every now and then or between some intervals, it is inevitable, History has seen many economic depressions and financial crisis; By now, we should least be prepared and have a contingency on how to overcome the lows.