BUSINESS CORNER: THE FUSS ABOUT RECESSION

As the second half of the year began, speculations of an economic recession had become real. Some persons refer to the current economic state as a “recession” while others call it the “Buhari era”.

However, amongst the persons that call it a recession, only a few of these persons understand what a recession is.

An economic recession is a period of general decline in economic activities and is typically accompanied by an increase in unemployment, decrease in the stock market, and decrease in real income, industrial production and wholesale-retail sales. The federal president or the entire administration is blamed generally for the recession. A recession doesn’t happen overnight, as it is two consecutive quarters of declines in quarterly real (inflation adjusted) gross domestic product (GDP). GDP is the market value of all goods and services produced within a country in a given period of time. 

Factors that cause recessions

1. Interest rates: High interest rates limit liquidity, or the amount of money available to invest.

2. Inflation: Inflation refers to a general rise in the prices of goods and services over a period of time. As inflation increases, the percentage of goods and services that can be purchased with the same amount of money decreases.

3. Consumer confidence: If consumers believe the economy is bad, they are less likely to spend money. Consumer confidence is psychological but can have a real impact on any economy.

4. Real wages: Reduced real wages are wages that have been adjusted for inflation. Falling real wages means that a worker’s paycheck is not keeping up with inflation. The worker might be making the same amount of money, but his purchasing power has been reduced.

Effects of economic recession on businesses

Running a business is naturally a risk, but more so in an economic recession. The effects of an economic recession on a business include:

a) Scarcity of customers: Due to the non-availability of money, fewer customers are able to pay for the products or services offered by businesses.

b) Increase in cost of utilities: Utilities like rent, marketing and advertising, raw materials, transportation, etc., experience a rise in cost as the providers of these utilities also are in the same economy as the business.

c) Dwindling cash flow: In a recession, customers may delay purchases or payments for longer than usual, often because they are waiting for income to arrive themselves. This causes a chain reaction of delayed payments from one vendor to another, which typically slows down all aspects of business. 

d) Staffing reductions: Scarcity of customers leads to financial shortages in a business, which usually results in budget cuts wherever possible. For instance, it is usually easier to lay off workers than it is to escape from a rent payment, so one of the first steps a business owner takes is reducing staff.

Next time we will be discussing on ways a business can thrive in this present economic recession. 

Make 2016 your best year yet!

Spread the word… 

It’s a #Deliberate2016.

Article by:

Osatohanmwen Omwanghe

osato.omwanghe@gmail.com

+2348130910375

Photo Credits: Facebook.com