The COVID-19 Recession
One of the biggest by-products produced from the COVID-19 pandemic is the recently declared economic recession. Unfortunately, it is no longer a matter of if or when, but a matter of right now. We are already feeling the effects of it due to many factors.
How is a recession created?
Basically, a recession is brought about within a country or community when consumers stop or limit their spending so much so that companies and business revenue slows down to a point that puts huge pressure on them to maintain operation. If the conditions continue for too long it leads to the cessation of training new employees, reduces wages for current employees and eventually to job cuts within the business. Because of these job losses, the economy is put under even more stress due to those now unemployed people trying to save money while unable to earn an income. A viscous cycle is created where companies cannot earn revenue to pay their employees who now cannot earn money to pay for services and products that those businesses sell. This normally occurs naturally within each economic cycle as businesses grow and increase their productivity until eventually the economy contracts and consumers start spending less money whereby creating the aforementioned economic stress.
How is COVID-19 creating a recession?
COVID-19 is slightly different in that it artificially created this stress. Self-isolation, forced business closures and fears of contracting the virus causing people to stay home. All these factors have directly contributed to the current economic strain and created the perfect storm for another recession.
The government has tried to increase the amount of disposable income people had access to in hopes of them spending it on those struggling businesses to alleviate some of the growing economic pressure. These tactics, such as free childcare, home loan pauses, job seeker and job keeper have all helped immensely but they can only help so much and for so long. We have indeed headed into a new recession created by COVID-19.
Will we be ok?
There is some good news though. Just as a recession was inevitable, the end of one is as well. As consumer spending drops, so do the prices of many services to try to regain their customers. Interest rates could decrease and possibly go all the way to 0.00%. This, and other reductions in costs for consumers cause more and more people to start spending again thereby bringing us back out of the recession.
Sooner or later our economy will start to grow again, making it a great time to start investing in many different areas such as property or the stock market. Just remember to be smart about it. Don’t jump into anything without first gaining some knowledge and seeking professional advice or assistance where necessary.
If you would like to learn more about how I can assist you in these tough times and protect you and your family from financial hardship. Contact us at any time for an obligation free chat 0423 313 486 or kate@solacewealth.com
Kate Trost
Senior Financial Adviser and Director of Solace Wealth Management (AR numbers 465078/1262350) Authorised Representative of Avana Financial Solutions Pty Ltd (AFSL 516325).