South African business entities and consumers are still coming to terms with the unwelcomed news that the country has slumped into a recession. Statistics South Africa revealed that the economy contracted 0.7% in April, May and June and revised its growth downwards for the first quarter to 2.6% putting SA in its first recession since 2009. For many who are still trying to understand the implications of this announcement, these are the effects and implications of a recession from a household and business point of view.
More consumers will tighten their purse strings and start spending only on essential items. This will negatively affect business sales especially if you are dealing in non-essential items. This will demand new and innovative methods to remain profitable.
You can expect financial liquidity crunch in the monetary markets which often translates into difficulties when you apply for loans as lenders qualifying standards go higher.
What may be a positive out of a negative situation is that a recession could induce the stock markets and property markets to fall drastically. This provides a perfect opportunity to invest in stocks and property due to lower prices and reap great returns when the economy goes back into boom cycle.
You can expect interest rates to fall during the recession. As the economy contracts, interest rates fall in tandem. This implies that when you apply for a home or car loan, it will most likely come with low interest rates.
The market is likely to be deprived of new products. This is because a recession pushes most businesses into insecurity and often hesitate to introduce new products due to low levels of demand. Innovative companies are likely to suffer more as their revenue depends on newly launched products.
A recession forces business houses especially those in the manufacturing sector to cut back on hiring new employees in order to save on labour costs. The result in this regard is increased unemployment.
The recession effects listed above can be mitigated or aggravated based on a number of economic factors and developments.