Nowadays, ‘Recession’ has become a quite popular word since England has predicted that its economy might go into recession on account of the high inflation situation. So what is this Recession, and whether this factor is also a threat to India, let’s discuss this in detail in this article as we move ahead.
What is a Recession?
- A recession is a fall in two consecutive quarters of economic decline or GDP.
- It happens when GDP contracts, the last time it happened in 2008, and recently in 2020 when a pandemic hits the world and all the economic activity was put on a halt, in some countries GDP was fell by 24% to 50% and due to fall in two consecutive quarter it is called as the recession.
- The same thing is happening again in the US. US economy was fall last quarter If it will fall again then it will be said that the US is in recession, there is less probability that India will go into recession though the growth rate can be impacted because of the rise in the crude oil price, increase in import bill, increasing trade deficit and impacting the overall inflation rate there is the possibility that we can see some slowdown in the economy.
How does RBI control the rising inflation?
- To control the rising inflation Reserve Bank of India (RBI)-the central bank of India increases the interest rate, a rise in interest rate will result in less demand for the product which will hurt the production of the product and also lead to unemployment, hence demand will fall more, ultimately all these things will impact GDP a lot.
- This is a complete cycle there will be a rise in interest rate to control inflation and when the demand will become too low the RBI will decrease the interest rate to create demand.
- After the pandemic hit money was printed and liquidity was infused into the economy which increases the inflation from the demand side, now covid-19 is increasing in China it is creating problems on the supply side, and this bad equation of demand and supply is leading to an increase in the price.
- Therefore, there is the possibility of a recession in the US, there will be some impact on India but India might not face a recession.
What Should Investors Do?
Investors should have a staggered way of investing; they should follow what they have been doing since now. There will lot of predictions about the market but investors should have patient and not fall for any such false news or prediction. Before taking any decision, an investor should do proper research.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF