So far, last year’s fears of an impending “great global recession” have not materialized; however, a new phenomenon appears to be underway.
According to experts, many global economies are in the midst of a rolling recession – a fiscal period that is indicated by one or both of the following:
- A gradual slowdown in economic activity, with some industries experiencing contraction while others remain relatively stable (e.g., certain sectors of the economy drop one after another, rather than all at the same time).
- A series of small economic contractions and recoveries recurring over an extended period of time.
Although only one of the two indicators is needed to officially define a rolling recession, the U.S., U.K., and Europe appear to be experiencing both simultaneously in 2023.
The U.S. Economic Picture is Confounding
Economists predicted a 70% chance of an economic downturn this year, and some analysts believe that the housing market, manufacturing, and corporate profits are all in rolling recession territory.
American manufacturing has already contracted into a recession, housing sales have plummeted, tech layoffs keep coming and corporate earnings growth is souring — American corporate earnings growth has entered its first contraction since the Great Recession of 2008-2009.
Despite those negative factors, the labor market is flourishing – U.S. unemployment is at its lowest level in the last 50 years and gross Domestic Product (GDP) and retail sales indicate that the economy is still expanding.
Headwinds Continue to Batter the Fed
Probably most confusing to many – every time good economic numbers come in (e.g., new jobs creation, healthy corporate profits, or solid consumer spending, etc.), the Federal Reserve (Fed) raises interest rates in an effort to cool inflation.
This triggers a sell-off on Wall Street and causes overall markets to fall continuing a nauseating rollercoaster of monthly, or weekly, ups and downs.
When corporate profits from big oil, tech, and automotive industries beat expectations, the markets rally again, soaring upward – the S&P 500 is up about 8% so far in 2023, while the Nasdaq Composite Index is up about 14%.
The party is usually short-lived, however, as the surges in the markets only last until the next interest rate increase or the Fed throws water on the fire by issuing another dire warning about inflation.
Britain is Also Up and Down but Not Faring Quite as Well
The UK economy was stagnant at the end of last year, although a recession had been predicted for months.
But still, the Bank of England has signaled that this will be one of the worst years for growth since the Great Recession of 2008.
In its February 2023 Monetary Policy Report the Bank reported that UK GDP is expected to decline by .50% in 2023 and .25% in 2024.
According to the International Monetary Fund (IMF), consumer confidence and business output in Britain are falling, while GDP is forecast to be barely higher in 2024 than in 2022.
Consumer spending is forecasted to fall 1.4% this year, with a growth of 2.3% expected in 2024.
Corporate layoffs are likely to be deeper than usual in the coming months – unemployment is expected to rise relatively modestly compared to previous downturns, with a tight job market and evidence of worker shortages.
Housing prices, which are already dropping quickly, are forecasted to fall by 2.4% this year, with another fall of around 3% expected in 2024.
“A Recession is likely to be deeper – but not longer – than previously expected,” according to Ernst & Young Global Limited (EY).
Accounting firm EY is predicting that GDP is likely to shrink over the first half of 2023 but not any longer than that.
Despite that, the UK stock market is actually booming – the FTSE 100 broke through three intraday records in the second week of February.
The makeup of the index kept it resilient through recent global market turmoil and bumper profits reported by energy, financial, and commodities firms have taken it to new heights.
This is despite a host of dire predictions for the U.K. economy and warnings that millions are facing a devastating cost-of-living crisis due to inflation.
The EU Economy Has Been Predicted to Barely Grow this Year
The latest economic outlook for the EU is also a mixed picture but the member countries have been bracing for a slowdown or even a mild recession.
But earlier this week, the European Commission updated its economic forecast, and it now predicts the 27 countries of the EU will “narrowly” avoid falling into recession this year and that its economy is expected to grow by 0.8% (and 0.9% for the eurozone).
The bloc’s better-than-expected energy outcome is part of the saving grace – warmer than normal temperatures meant less demand for natural gas needed to heat homes and businesses.
Last year, Russia squeezed the supply in retaliation for Europe’s support of Ukraine, but households and businesses cut energy demand by 20% and December and January’s temperatures were warmer than expected.
Also, Germany has been rapidly building offshore terminals to import liquefied natural gas from places other than Russia.
Despite the ongoing war in Ukraine, gas prices have fallen, European businesses have adjusted their trade flows and supply chains to get around disruptions and inflation has leveled off.
However, Sweden is forecast to be the only economy in the EU to contract this year, with a 0.8% decline in its GDP in 2023 followed by an expansion of 1.2% next year.
Lasting Effects of a Recession Rollercoaster
The main cause of a rolling recession is the inability of governments to implement effective policies to stimulate their economies.
Governments often fail to recognize the signs of an impending recession or delay taking action until it is too late. As a result, the economy is unable to recover in time and another recession begins.
The effects of a rolling recession are typically more severe than a single recession, according to financial experts.
Each small downturn puts additional strain on businesses, households, and public services — leading to an increase in unemployment, poverty, and inequality, but it can also cause significant damage to businesses and the economy as a whole.
What Can Consumers do to Protect Themselves?
Experts suggest that people should prepare their finances for a rolling recession by taking steps to protect themselves from inflation and other economic risks.
This includes budgeting carefully, saving money, and investing in assets that are likely to retain their value over time.
According to financial gurus at CNBC, these are six strategies you should consider during a rolling recession:
- Make your dollars go further: As the cost of money gets more expensive, consumers are put in the position to figure out how to best spend their limited dollars.
- Take another look at your spending: If you’re feeling cash-strapped right now, it’s worth seeing where you can eliminate any discretionary costs — in other words, expenses outside the necessities of things such as rent, food, and utilities.
- Get rid of high-interest credit card debt: With prices rising significantly on everything from groceries to gas and travel, many consumers are turning to their credit cards to get by. While credit cards can help you in a pinch, not paying off the balance entirely by the end of your billing cycle can add up quickly.
- Extra cash? Boost your emergency fund while you can: If you’re feeling grateful to be sitting on any extra cash — maybe that tax refund you haven’t spent yet — add it to your emergency fund.
- Stay the course with your investments and think long term: While market movements can certainly be exciting and, on the other hand, unsettling, it’s crucial to remember that investing is a long game where you benefit most from sticking it out over the bumps.
- Consider rolling over to a Roth IRA: If you don’t already have a tax-advantaged Roth IRA, now may be the time to start the process of rolling over your money to one.
Consumers will undoubtedly be feeling the nauseating effects of a rolling recession for the next few months, at the very least. The old adage applies – “what goes up must come down” – parabolic growth is unsustainable, but sooner or later, everything comes back into balance.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
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