Recession - when economic output shrinks

Reading time 5 minutes
Recession - when economic output shrinks

Inflationary prices, weakening economy: Are we in a recession? What exactly does recession mean - and how bad is the situation? Here, you'll learn about the correlations and get tips on how to overcome the economic problem phase.

Definition: What is a recession?

What does recession mean simply explained? The Term refers to an economic downturn. By definition, however, it is only a recession if the economy shrinks (or fails to grow) in two successive quarters at the same time as gross domestic product. This downturn is visible to all market participants, which is why fiscal and economic policy adjustments are often necessary.

Economic performance can be measured by gross domestic product. For this purpose, economists use the values of all goods and services. This is why it is only possible to tell in retrospect whether an economy was in recession.

And how long does a recession last? On average, nine months can be expected. The duration depends on the national and international situation and, of course, on monetary policy in the countries concerned.

The last recession in Germany took place in 2020 - the Corona crisis was the trigger. In the first half of 2023, it looks like the next economic crisis is looming. The thought makes your head spin.

5 typical characteristics: How do I recognize a recession?

The economic downturn can be traced back to several Characters to recognize. The most important features include:

  • reduced demand,
  • lower investments,
  • falling or stagnating prices, salaries and interest rates,
  • Decommissioning of production facilities,
  • falling share prices.

These problems lead to negative consequences. There are more and more overcrowded warehouses, many companies rely on short-time work and overtime reduction. In the worst case, there are economically induced layoffs.

In the private sphere, people are starting to save. Fewer vacations, inexpensive products: If you don't have enough money, you can't spend it. This in turn slows down the economy and the entire cycle collapses.

recession opposite

What does recession mean for my money?

Recession often begins with inflation. Main problem: Everything becomes more expensive and therefore your money is worth less. The purchasing power of each citizen decreases. It's logical: if you have less money, you can spend less. They also reduce their consumption. So the companies don't sell as much as before, earn less money - and thus the production capacity of the industry is reduced.

This is often compounded by delivery problems. When these negative factors combine, the gross domestic product continues to shrink. Recession and inflation are thus closely linked.

You have Fearthat your financial resources are dwindling? You're certainly not alone. Fortunately, there are ways to limit the impact of the recession.

5 steps to minimize the impact of a recession on you

What happens during a recession - what problems do you face? Many citizens fear a loss of prosperity and heavy losses. But with the right Tips you can protect yourself from financial difficulties. In the best case, you can even profit from the recession if you are smart about it.

The following five steps will help you keep your money together and even grow it:

  1. Don't spend more money than you have. Save your moneyto be able to hold out for a while in the event of short-time work or job loss. Maybe you can even top up your savings: that way you'll have a nest egg for at least a few months.
  2. Compare prices and look for bargains. Deals can save you a lot of money, whether you're at the supermarket or buying online.
  3. Invest in your own (continuing) education if you want to Time for it. Particularly for the unemployed, retraining and continuing education measures are worthwhile. There are often subsidies from the Federal Employment Agency.
  4. In the recession, valuable assets are also worth less. That's why it's not a good idea to sell stocks, real estate and other investments right now. Instead, hold on to your financial assets and wait for prices to rise.
  5. If you want to invest: Safe investments such as gold and bonds are also a good choice in times of crisis.

Strategies to strengthen your financial resilience in times of recession

Want to protect your own money and position yourself strongly? In a recession it is important to set up a good strategy. Sensible investments in forward-looking companies will help you weather the crisis. If you have enough cash reserves, you can invest in optimistic companies that bring their breakthrough ideas to the market. Positive signs are strong marketing and new product launches.

In the Masterclass Never worry about money again you will learn how to secure your finances and even make them grow. Experienced experts explain the background to investing money. With their help, you'll be able to invest more... financial freedom to get.

8 Tips: How you can use the recession as an opportunity for personal growth

The economy is in crisis, but you don't want to let that drive you crazy. When stock prices fall, they have to rise again at some point. That sounds logical, even if the toxic mix of rising interest rates and runaway inflation can initially lead to recession. Speaking of which, what is actually the opposite of recession? - Exactly: economic recovery.

So you sit down and think carefully about how you can secure your capital without great risk or even invest it profitably. The following eight tips will show you how to take advantage of your opportunities.

  1. Your call money or time deposit account won't get you anywhere during the recession. That's because the central bank is lowering the key interest rate to counteract the economic crisis. So you'd better invest your money.
  2. Do you already have shares? Then don't sell them if they are not worth much. Rather, use the low prices to enter the market. That's the smart way to build up your portfolio.
  3. Companies often reduce their investment costs in order to save money. But it is precisely now that investing in long-term innovations makes sense. Research and development are enormously important. Think about that if you want to invest as an entrepreneur or private person.
  4. For cautious investors, there are defensive stocks. You'll find these primarily in companies that trade in consumer staples. The utilities sector is also indispensable and correspondingly safe.
  5. Commodities are also among the safe investments, whether they are metals, gas or food.
  6. Government bonds are a good short-term investment. These benefit from a reduced key interest rate and can bring you high returns during a recession.
  7. Forex trading can be a great opportunity depending on the size of the recession. However, you need to have the right perspective. The impact of an economic crisis on the forex market is not always clear.
  8. In times of economic downturn, real estate is an interesting option. You may find a property at a favorable purchase price - or an investment.

Your recession management - strengthen yourself and emerge stronger from the crisis

Overcoming the downturn and remaining financially stable - it's not as easy as it sounds. With the right measures and tips, you can strengthen your economic resources. This will also have an impact on your retirement planning. Minimize your debts and position yourself well.

Learn how to do this in the free Masterclass Never worry about money again. With the appropriate strategy, you'll get through the recession just fine and keep your head up.

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