Recessions have plenty of negative consequences, but they can provide a necessary reset for the markets. Higher interest rates that often coincide with the early stages of a recession provide an advantage to savers, while lower interest rates moving out of a recession can benefit homebuyers.
A recession may provide for a real cash savings on real estate, for personal or business benefit. Businesses that lease may find that landlords are willing to negotiate on terms and provisions during this time period, as they grow concerned about a protracted downturn and increased vacancies.
The economic cycle
What comes after a recession depends on who you ask: officially, the economy goes back into the expansion phase when a recession ends. However, many economists add a period of recovery – the initial period post-recession when the economy starts growing again but is still short of its previous level.
Precious metals, like gold or silver, tend to perform well during market slowdowns. But since the demand for these kinds of commodities often increases during recessions, their prices usually go up too. You can invest in precious metals in a few different ways.
A typical recession persists for about a year, while an expansion often lasts more than 5 years. Recoveries from recessions are strong, reflecting the presence of a bounce-back effect.
Rising unemployment. Unchecked inflation. Asset bubbles (such as the housing bubble that caused the GFC). Significant stock market losses or crashes.
The Bottom Line
The Great Recession lasted from roughly 2007 to 2009 in the U.S., although the contagion spread around the world, affecting some economies longer. The root cause was excessive mortgage lending to borrowers who normally would not qualify for a home loan, which greatly increased risk to the lender.
Consumer staples, including toothpaste, soap, and shampoo, enjoy a steady demand for their products during recessions and other emergencies, such as pandemics. Discount stores often do incredibly well during recessions because their staple products are cheaper.
Australia's 80 per cent recession risk
Research from the Reserve Bank estimates that Australia's risk of recession over this year and next could be as high as 80 per cent. But policymakers try to be more precise than that, so they use a specific definition of "recession" to say for sure if one has begun.
For example, you'll want to avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Workers considering quitting their jobs should prepare for a longer search if they decide to find a new one later.
Stock prices nosedive during recessions . Millionaires and billionaires purchase them for pennies on the dollar. Then, once stock prices recover, the value of their holdings skyrocket, causing them to get significantly richer.
In general, a recession lasts anywhere from six to 18 months. For example, the Great Recession that started in December 2007 lasted 18 months. But the recession prompted by the pandemic in 2020 only lasted two months.
For investors, “cash is king during a recession” sums up the advantages of keeping liquid assets on hand when the economy turns south. From weathering rough markets to going all-in on discounted investments, investors can leverage cash to improve their financial positions.
Generally, the industries known to fare better during recessions are those that supply the population with essentials we cannot live without that. They include utilities, health care, consumer staples, and, in some pundits' opinions, maybe even technology.
(NYSE:WMT) are often considered to be money-makers in times of recession. According to McKinsey report published in 2009, recession-resistant industries include consumer staples, healthcare, telecommunication services, and utilities, among more.
Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades. While there is also no standard definition for depression, it is commonly defined as a more severe version of a recession.
Build up your emergency fund, pay off your high interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score.
What was the longest recession in history? The longest recession in U.S. history was the Long Depression, which began in 1873. It was a series of recessions that lasted for more than five years and was caused by the U.S. financial markets' inability to keep pace with industrialization and monetary policies.
1991–1992: The early 1990s recession mainly resulted from Australia's efforts to address excess domestic demand, curb speculative behaviour in commercial property markets and reduce inflation.
In a recession, interest rates will decrease, and a good loan deal will be more in reach. Some car manufacturers bring back special financing that can give you a remarkably low rate. During the recession, there are fewer car buyers as well.
In a best-case scenario, the U.S. will likely see a 'soft landing' with low/slow growth across 2023 before picking up in 2024. However, a downside scenario is a real possibility and could see the U.S. enter a prolonged recession lasting well into 2024, as is currently forecast for the UK and Germany.