The day after tomorrow: the next recession

There’s a storm brewing and it’s just around the corner: a survey of professional economists found that the next recession is predicted to begin at the end of 2020, with the public feeling the effects during 2021. How can they know this?

There are a few clues across the board in the West. In the US, federal monetary policy could be the cause of the next recession—in 2017, the Republican government cut taxes on corporations which, while boosting the economy a little, had less boosting power than expected and the positive effects are predicted to have faded by 2022. So companies may be paying less corporation tax which makes the United States a more welcoming place to do business, thus encouraging new businesses—but the number of new companies was less an explosion and more a gentle burp. At the same time, lower and middle-class Americans face future tax hikes to offset the corporation losses. A risky gamble and likely to see a losing America.

Perhaps part of the reason for the lack of new companies is the risk of debt. Corporations, like people, can handle debt but right now, they’re holding a lot. In the US, there are about 30 million businesses, together holding $9 trillion in debt—additionally, the 325 million people living in America collectively owe $13 trillion. Personal debt, student debt, and business debt are crippling the economy and $21 trillion is a lot of money to owe; it’s no wonder people fear this bubble is about to burst.

And the government isn’t helping. Rather, they’re starting a trade war. We may consider ourselves fortunate that Donald Trump hasn’t gone in guns blazing in a literal sense, but his trade policies and international diplomacy skills leave much to be desired. Rather than working well with America’s largest trade partner, China, the US is getting nasty and using trade regulations to pick fights. It’s not much better further down the order, as Trump starts actively flexing his muscles with Canada and Mexico.

Where the US leads, the rest of the West tends to follow but don’t think Europe is simply going to suffer the consequences of a US recession: Europe is making its own bed too. Britain and the European Union have been trying to negotiate the terms of their divorce for two years—and there’s no end in sight. Couple this with the United Kingdom’s inability to find unity and poise within its own Parliament, and fear and doubt are beginning to affect the value of the pound. The volatility of this situation has ripple effects on the stability of the entire interconnected global marketplace and it’s well understood a no-deal Brexit would cripple the British economy. Dark times ahead if politicians can’t get their acts together.

Recessions are normal—they happen all the time as the economy cycles round. The economy regularly expands and contracts, affected by things like the gross domestic product, employment levels and interest rates. And this one probably won’t be as bad as 2008 but that doesn’t mean everything is going to be okay. The people hit the hardest by the next recession will be those without much to lose in the first place: they’re the people at the mercy of the large corporations looking to protect their bottom line by cutting hours or laying off low-wage workers all together. Companies will implement austerity measures to avoid losing profit, preferring to sacrifice those at the bottom of the pyramid rather than involve pay cuts for anyone at the top. If you’re middle of the pyramid, you should be able to weather the storm, but as interest rates rise, forget all about trying to sell your house. Oh, and if you’re unfortunate enough to be laid off, sadly there’ll still be a mortgage to pay.

Of course, there are some people who benefit from a recession: the savvy financially solvent who have the ability to buy low and sell high and generally ride the wave of an economic downturn. But for the most part, people suffer. Families lose their homes; small businesses come tumbling down; people who can’t afford healthcare die.

Let’s hope this one won’t be too bad. While there’s probably no need to stock up on tinned food and candles, there are a few things you can do to arm yourself in the next year or so.

Pay off as much debt as you can now. This will reduce your expenses overall when you may have to tighten the purse strings and also protect you from rising interest rates. At the same time, increase your existing credit limit but don’t spend it. Credit becomes harder to access during a recession, so get it while you can and keep it in case of emergency. Speaking of emergency, beef up your savings as much as you can now—try to have something put away, and if you can’t do this and pay off your debt, prioritise paying back anything you owe. Identify areas you could cut back on before you have to: the less money you need to spend each month, the easier it’ll be to pay your bills if you lose your source of income. And in case you do lose your job, spend some time now broadening your skillset to stand out amongst everyone else competing in the future job market.

Another recession is coming and it’ll pay to be prepared. ■