Friday, August 19, 2016 3.38 PM / Taiwo Ologbon-Ori, Personal Finance
No doubt, recession is upon us. Bailouts, bankruptcies, and poor earnings are likely to be rampant if the right policies and measures are not rolled out on time with the right communication from government. The growing unpaid salary in over 25 states across the nation is still a tremor- the economic earthquake may hit soonest. And if as an individual, you have no control over what is happening in the overall economy, you should have control on your thoughts and lifestyle, because this is the real change.
The Nigerian economy has been experiencing stagflation in recent times, with strong possibility of slipping into recession by all indications- after recording a negative GDP growth of -0.36% in Q1'16, followed by a jump in inflation figure to 16.48% in June from 15.05% in May. As a result of continued bearish growth in macroeconomic fundamentals without quick intervention or economic buffers in terms of policies from FG in the face of widen divergence between fiscal and monetary policies, another negative GDP growth in Q2'16 remains inevitable.
The government has no choice but to admit that the economy is technically in recession, and the need for effective communication to prepare masses against the incoming 'economic-earthquake' is missing while we are dancing on the 'edge of a black hole'- this gives us much concerns.
At Proshare, we found it more obligatory than important to adequately educate and prepare users of the platform against likely shock waves. In this article and in our subsequent periodic articles on 'Recession', we shall reveal what this means to various classes of people but not limited to (1) low-income earners- how recession will impact salaries and purchasing power, (2) retail investors in stock/capital-market- how recession will affect portfolios and choice of assets etc. While we may implore you to share your experience with us, our planned periodic articles on the subject matter would employ a solution-based approach - on how to re-position for likely opportunities during the adversity.
Essential and basic insight for you!
During recessions all fronts are likely to meltdown and the state of the economy would be grossly depleted i.e. Employment, personal income, sales and profits in companies would shrink. There would be a significant fall in both consumers and investors confidence, cost of living would go up and standard of living would be impacted significantly. Many companies may trim staff-base or wind-up, unemployment or job loss would increase, high chances of pay/wage/salary cut, austerity measures would be the order of the day in both formal and informal sectors, that is companies and individuals would cut-down on spending constructively and embrace savings.
Savings is likely to be next rational action!
There is high tendency for people to gravitate towards savings and consume less due to decline in income and surge in uncertainties in the job industry. The reactionary effect may worsen the bad situation as this would contract consumption and spending further- Monetary & Fiscal policies are expected to lower rates to encourage active spending. Risk appetite would deflate naturally while investors would tilt towards low-risk investments (fixed income assets, T-bills, Bonds and deposits)- it is really advisable at the moment as rates are currently high to mitigate/cushion effect of high inflation.
Those who are likely to benefit during recession
• Economists and Analysts may get consultancy businesses towards developing solutions and strategies, as a way out of recession
• Firms that produce essential commodities locally with local resources
• Firms that deal in inferior or second-hand products
• Mega-retail shops or dealers may record demand surge as income shrinks across broad, buyers move en mass towards cheap quality products or low-end alternative/substitutes
Basic and essential safety measures
• You are expected to cut down spending on fashion, vacations, luxury things, parties and social spending, clubbing and luxuries
• Don’t take unnecessary financial risks and be conservative with your spending
• Don’t be a loan guarantor for anybody during recession- if the person fails to make payment as a result of job loss, you may be asked to make the payment.
• Focus on paying-down existing loans faster; don’t add additional loans like car loans/facilities.
• Pay bills in advance if possible in order to mitigate the impact of inflation
These basic insights are meant to prepare your mind as we expect you to keep a date with our periodic personal finance articles on:
While we would appreciate your feedbacks, we would also like to encourage you to share your experience with us on your survival moves, options taken and what more you would like to know.
Kindly send in your personal stories, views and comments to firstname.lastname@example.org and email@example.com