Slowcession : A new fad in the recession market

A growing chorus of big banks and prominent economists has warned of a US recession in 2023, but Moody's Analytics believes their predictions are a little overly pessimistic.

 

According to Moody's, the world's largest economy will avoid a recession this year and instead face a'slowcession' – a scenario in which economic growth slows but never reverses.

 

What do you mean by Slowcession? 

 

Slowcession is a combination of the words "slow" and "recession," referring to an economic slump marked by slow growth and significant unemployment. Slowdown is a word used to denote a prolonged period of economic stagnation and labor market difficulties.

 

It frequently includes a steady reduction in economic activity, consumer spending, and business investment, resulting in a prolonged period of weak or negative economic growth. During a slowdown, firms may struggle to expand, hiring may be constrained, and economic growth may be slow.

 

A "slowdown" is a situation in which the economy scarcely grows. It occurs when economic growth slows to a near-standstill but does not turn negative, as happens during a recession.

 

Mark Zandi, Chief Economist at Moody's Analytics, coined this word in January 2023 to describe the status of the US economy. According to Zandi, there is a good probability that a recession or downturn may be avoided, and that the economy will grow—albeit slowly.

 

Moody's argues that these could help mitigate the economic repercussions of interest rate hikes, such as increased borrowing costs, slower economic growth, and more volatile financial markets.

 

"Under practically any scenario, the economy will have a terrible 2023. However, inflation is fast cooling, and the economy's fundamentals are healthy," argues Mark Zandi, 

 

Individuals and families may suffer as a result of this, as they struggle to find work and deal with the financial strains of a stagnant economy. Understanding the features and repercussions of a slowdown is critical for governments, organizations, and individuals looking to navigate and alleviate the effects of a difficult economic environment.

 

Also Read | Market Failure and Role of the Government

 

Impact of Slowcession on the economy

 

Unemployment could increase. Graduates and school leavers may find it more challenging to get work. According to the Institute for Fiscal Studies, businesses may struggle to pay their employees or provide wage increases to keep up with inflation. Investors may potentially face losses as stock markets decline. During a recession, we may see an increase in foreclosures, and banks will be less likely to loan money to potential borrowers looking for a mortgage or a personal loan, according to Forbes.

 

Impact on Economic Growth Slowcession, defined as an economic slowdown that reaches the point of recession, has a substantial impact on economic growth. This issue has ramifications for a variety of industries and the global economy. Sectoral Effects Slowdown has far-reaching effects in various sectors.

 

Manufacturing industries face decreased demand for goods, resulting in production cuts and probable job losses. Consumers are cutting back on spending, which is affecting the retail, hospitality, and entertainment businesses.

 

 Global Economic Consequences Internationally, a slowdown might result in currency depreciation, decreased export activity, and weakening financial markets. Nations with strong trade dependence suffer as demand for their goods and services declines. To summarize, the slowdown has a significant influence on economic growth, affecting a variety of industries and posing worldwide financial concerns.

 

Stock markets are also likely to suffer during recessions. As consumer confidence and expenditure decline, corporations may be obliged to lay off employees, resulting in poor investment performance and market panic. According to Goldman Sachs, the US stock index (the S&P 500) declined by a median of 24% throughout the 12 recessions that followed World War II.

 

Also Read | Navigating The Liquidity Crisis: Guide For A Successful Business

 

Moves to prepare the economy from slowcession

 

During a recession, proper money management and economic decisions are more important than ever. But what happens during a "slowcession"? Even during a "slow recession," associations should take several critical steps to ensure strong finances that can endure economic ups and downs.  

 

Here are six steps your organization may take to increase resilience during these unpredictable economic times.

 

1. Protect the cash flow

 

First and foremost, close the hatches! In other words, you need to secure your organization's financial flow. Cash is king, and it is required for the operation of an association. This means the association should maintain a cash reserve in a high-interest savings account. Protecting cash flow, whether through grants, membership fees, or other sources, should be a top focus during uncertain economic times.  

 

2. Mitigation Strategies

 

Implementing varied investing methods can help to lessen the impact of the slowdown. Reducing operational expenses and optimizing resource allocation can also improve resilience. Maintaining significant cash reserves and establishing a solid financial cushion can also serve as a shield against economic downturns.

 

3. Review the Association's Budget

 

In addition to maintaining cash flow, you should ensure that your association's budget is thoroughly reviewed. You should have a clear understanding of your monthly fixed and discretionary spending. While reviewing the budget, make a note of any areas where cash is flowing but no longer makes sense.  

 

4. Reduce extra spending

 

While reviewing the budget, you will have to make several important judgments. Is there someplace you can cut the fat? In other words, what costs can be reduced? Perhaps that monthly costly social function is decreased to a bimonthly one, for example. Or suppose the traditional Christmas presents distributed to members in December are postponed until 2024 and then resumed when the economy improves. There are always little tweaks that you can make for budgetary improvement that can yield a healthier financial picture.  

 

5. Practice Transparency and Good Communication

 

Good communication goes a long way with employees and members of an association. Good communication consists of transparency, honesty, and concise messaging. If there will be significant changes to staff or member benefits, such as to safeguard cash flow and minimize spending, explain them early and regularly with clear language.  

 

6. Review staffing and provide resources to staff

 

During a "slowdown," it may be essential to significantly limit cash flow if finances have not been properly handled or unforeseen expenses arise. This may necessitate staffing reduction. Layoffs happen (like last year’s tech layoffs), but make sure your association handles any needed layoffs with clarity, kindness, and support.

 

Employees facing benefits adjustments or reductions in work hours may suffer in the near term, either with their mental health or financial health.

 

Conclusion

 

Understanding the concept of a slowdown is critical for navigating the present economic environment. We can lessen the impact of a lengthy period of economic downturn on businesses and individuals by recognising it and adapting our strategies. Staying informed and adapting to changing market conditions is critical for thriving despite the hurdles.

Also Read | What is Recession? How is it different from Depression?