Recession fears have resurfaced in recent weeks, with a sharp stock market selloff sparking renewed concerns about the global economy. Recessions are periods of economic slowdown characterized by a decline in spending and higher unemployment. They can be caused by a variety of factors, from the bursting of an asset bubble to unexpected shocks (like pandemics) to policy changes.
This year’s rise in energy prices, a global supply chain disruption and unexpectedly restrictive monetary policy all contributed to surging inflation across many countries, which led to rapidly rising interest rates around the world. This led to the yield curve inverting in March 2022, a signal of recession expectations. This exacerbated existing concerns about pent-up consumer spending and accelerating wage growth, with a growing number of adults under the age of 35 having never experienced an extended economic slowdown or downturn.
During a recession, consumers typically pull back on their spending, which can lead to higher unemployment and slashed corporate profits. It’s also not uncommon for credit to dry up, making it more difficult to cover emergencies or make a mortgage payment. That’s why it’s important to have an emergency savings fund, prioritize debt repayment and live within your means.
A recession can be a stressful time, but it’s also an opportunity to strengthen your financial plan. Be sure to diversify your investments, invest for the long term, keep an eye on your credit score and be honest with yourself about your true risk tolerance.
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