How to Prepare for a Recession
Money Management Nov 25, 2020
Recently, Nigeria entered its second recession in the last 5 years. In this article, we will try to explain what happens during a recession, how it may affect us, and what we can do to keep us financially insulated from the shocking effects of a recession on our economy.
What happens during a recession?
A recession is a period of decline in general economic activity, which typically occurs when an economy experiences a decrease in its Gross Domestic Product (GDP) for two consecutive quarters. The GDP is Nigeria’s biggest economic data, and it measures the monetary value of everything produced in the country in a given period. It depicts the nation’s total economic activity. A recession is an indication of a drop in the volume of goods and services produced in the country in the last two quarters.
Nigeria in Recession
The Nigerian economy officially plunged into recession, its second in five years, as the country’s GDP in real terms declined by 3.62% YoY in Q3 2020, making it the second contraction in 2020. This is according to the third quarter (Q3) GDP report, released by the National Bureau of Statistics (NBS) on Saturday 21st Nov 2020.
According to the report, the performance of the economy in the 3rd quarter reflected residual effects of the restrictions to movement and economic activity implemented across the country in early Q2 ( April – June 2020) in response to the COVID-19 pandemic. The report shows the economic decline affected both the oil and the non-oil sectors. Trade (wholesale and retail) accommodation and food services, and real estate are some of the key sectors that experienced significant economic decline.
IMF has forecasted the Nigerian economy will contract -4.3% in 2020, as the Central Bank continues to drive aggressive intervention to stimulate the economy on the path of recovery.
How might the recession affect you?
As a business owner:
Loss of demand, high cost of doing business, potential difficulty in increasing sales due to reduced economic activity, marketing constraints.
As a contractor:
The government may likely put some ongoing projects to a halt, leading to the loss of jobs.
As an employee:
Companies may lower wages and income, halt promotions, and stall growth opportunities, reduce staff size to adjust to economic realities.
As a local investor:
Lower rates of return and falling asset prices should be expected as a reflection of the economic situation.
As a Nigerian:
A potential drop in disposable income, a drop in net worth as Naira devalues further against the Dollar, loss of business opportunities.
How to prepare for a recession
The first step to take is not to panic. Fear leads us to make decisions that may not be beneficial to us in the long run. Economies of the world have gone into recession and have made it out at some point in time including Nigeria. Understanding the new realities of the economy, here are a few things you can do to ensure you stay ahead of economic changes.
Learn to save
- Stop living above your means
- Do not incur more debt and pay off high-interest debt religiously
- Do not put your money in get-rich-quick schemes
- Build up an emergency fund
Adopt the frugal lifestyle
- Check your spending and stick to a budget
- Don’t splurge on expensive wants just yet – Vacation, luxury shopping e.t.c
- Don’t liquidate all your assets, keep only the money you need at a time.
Increase your earnings
- Invest regularly
- Pick up a side hustle
- Brainstorm ways you can earn more
- Protect the value of your investment with investment options like the OVERWOOD Dollar
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