How to Prepare for Recession Coming in 2023?
It’s been a tough year for everyone as the Recession is Coming in 2023, with stock prices falling and inflation making it harder to pay the bills. But many fear that we haven’t seen the worst and that a recession could be looming.
The global economy has taken a massive hit during the COVID-19 pandemic. And while recovery efforts were underway, the Russian-Ukrainian conflict deepened the crisis. As these events are expected to have a lasting impact on the global economy, many experts believe that an economic recession will occur in 2023.
While the US economy shrank in the first half of the year, we are not officially in recession yet. The National Bureau of Economic Research is responsible for this challenge, and these economists have not yet declared a recession.
But that could change in 2023. Is a recession on the horizon? And what can you do to prepare? Here’s what you need to know.
Recession coming in 2023 can be hard to predict
No one – not even the experts – can accurately predict how the economy will do. This is especially true when the economy is sending somewhat mixed signals.
For example, a slump in house prices could indicate that a recession is more likely. But one of the key signs of a recession is high unemployment, and with the labor market stronger than ever — and many industries still experiencing labor shortages — some economists are hesitant to call a recession yet.
Some experts believe that the Fed’s interest rate policy could affect the potential for a recession. The Fed has already raised interest rates several times this year in an effort to slow inflation, but higher interest rates are also more likely to slow the economy and lead to a recession.
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The good news is that if we do face a recession, most experts believe it will be a mild one. In fact, about 70% of economists believe we are unlikely to see a sharp rise in unemployment next year, according to a Reuters poll.
Recession coming 2023 shouldn’t change your investment strategy
Stock market declines and recessions often go hand in hand, and many investors worry about how a recession might affect their portfolios. However, regardless of what happens with the economy, it shouldn’t change your investment mindset.
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Investing in the stock market is a long-term strategy and short-term ups and downs should not affect your decisions. While stock prices will continue to fall in the coming months, the best way to keep your money safe is to hold onto your investments until the market recovers.
Trying to time the market and sell your stocks at the right moment is incredibly risky and you could easily lose more than you gain. But if you simply hold onto your stocks for the long term, your investment should eventually return and you won’t lose anything.
There are ways to protect your portfolio—even in a recession coming in 2023
Whether we end up experiencing a recession coming in 2023 or not, there are ways to keep your money as safe as possible. Holding your investments for the long term is the best way to protect your investments, but there are several other factors to consider for a recession coming in 2023.
- Avoid investing any money you might need in the near future: If stock prices plummet and you then realize you need to withdraw your savings, you may end up selling your investments at a big loss. If you’re investing for specific goals — like saving for a house — make sure you’re prepared to leave your money in the market for at least a few years before you invest.
- Strengthen your emergency fund if you haven’t already: If you have no emergency savings and you lose your job or face an unexpected expense, you may be forced to tap into your investments—and lock them in for losses.
- Invest in high-quality companies: Market dips can be a more affordable time to buy because many stocks are on sale right now. However, not all companies will be able to recover from the recession. Before you buy, do your research to make sure you’re only investing in strong companies with long-term growth potential.
Some experts believe that a recession coming in 2023 is increasingly likely, but no one knows for sure what will happen. However, by investing in strong companies and holding those stocks for the long term, you are much more likely to ride out any recession.
The Covid-19 pandemic has hit the global economy hard. And even as the economy struggled to recover from it, the war between Russia and Ukraine came as another major setback. The combination of these two factors is expected to push the global economy into recession coming in 2023. And India is not immune.
Reasons of Recession coming in 2023
1. Big production loss in 2023
Global production would have risen by 23 percent since 2016 if the pandemic had not occurred. However, it is now projected to grow by only 17 percent. The global slowdown will leave real GDP still below its pre-pandemic trend and is expected to cost the world more than $17 trillion, nearly 20 percent of global income.
Russia, Indonesia, India, the United Kingdom and Germany are among the countries that may contribute the most to this global output loss, the United Nations Conference on Trade and Development (UNCTAD) report said.
While India may bear a loss of 7.8 percent in 2023, the Eurozone is expected to lose 5.1 percent, China 5.7 percent, the United Kingdom 6.8 percent and Russia may bear a loss of 12.6 percent. Rising interest rates, weakening currencies, rising public debt – all driving up food and fuel prices – have brought uncertainty to global markets.
2. Rising interest rates to stop inflation
A new World Bank study shows that central banks around the world raising interest rates to curb inflation may not be a good idea. This can probably lead to various financial crises along with recession coming in 2023.
“Global growth is slowing sharply, with further slowdowns likely as more countries fall into recession coming in 2023. My deep concern is that these trends will persist with long-term consequences that are devastating for people in emerging markets and developing economies,” she said. World Bank Group President David Malpass.
3. Increasing public debt is the biggest reason for recession coming in 2023
The International Monetary Fund (IMF) warned of the possibility of a recession coming in 2023 as well. IMF MD Kristalina Georgieva said earlier this week that global economic growth could be $4 trillion lower by 2026. Things are more likely to get worse than better, she added.
While all regions are expected to be affected, alarm bells are ringing loudest for developing countries, many of which are on the brink of debt default. Lower-income and lower-middle-income countries spend more money servicing their public debt. Somalia, Sri Lanka, Angola, Gabon and Laos are the countries with the highest share of revenue needed to service public debt.
4. Weakening Currencies for recession coming in 2023
In an effort to mitigate currency weakness, developing countries spent nearly $379 billion from their reserves, nearly double the amount of the IMF’s new Special Drawing Rights (SDRs). The value of the SDR is based on a basket of five major world currencies: the US dollar, the euro, the yuan, the yen and the British pound.
Interest rate increases in advanced economies are estimated to hit the most vulnerable the hardest. Nearly 90 developing countries have seen their currencies weaken against the dollar this year — more than a third of them by more than 10 percent, UNCTAD noted.
Expensive food and fuel in 2023
Food and energy are two factors that directly affect the lives of ordinary people. In 2022, there was a dramatic increase in food and fuel prices. While the food price index rose to a lifetime high of 125.7 in 2021 and further to 146.94 by September 2022, India’s basket of crude oil prices averaged $102.14 per barrel from April to October 2022.
The price of the Indian basket of crude oil was $79.18 per barrel in 2021-22 and $44.82 per barrel in the previous financial year.