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Coronavirus: How could a recession affect me? | |
(5 days later) | |
The UK, along with much of the rest of the world, is thought to be heading into the worst recession for decades. | The UK, along with much of the rest of the world, is thought to be heading into the worst recession for decades. |
So what exactly does that mean? | So what exactly does that mean? |
What is a recession? | What is a recession? |
In normal times, a country's economy grows. | In normal times, a country's economy grows. |
Its citizens, on average, become slightly richer as the value of the goods and services it produces - its Gross Domestic Product (GDP) - increases. | Its citizens, on average, become slightly richer as the value of the goods and services it produces - its Gross Domestic Product (GDP) - increases. |
But sometimes the value of goods and services produced falls. | But sometimes the value of goods and services produced falls. |
A recession is usually defined as when this happens for two three-month periods - or quarters - in a row. | A recession is usually defined as when this happens for two three-month periods - or quarters - in a row. |
If a recession carries on for a long time, or is particularly bad, it is known as a depression. | If a recession carries on for a long time, or is particularly bad, it is known as a depression. |
Why does it matter if there is a recession? | Why does it matter if there is a recession? |
For most people, economic growth is a good thing. | For most people, economic growth is a good thing. |
It usually means there are more jobs, companies are more profitable and can pay employees and shareholders more. | It usually means there are more jobs, companies are more profitable and can pay employees and shareholders more. |
A growing economy also means the government receives more money in taxes. So it can cut taxes, or spend more on benefits, public services and government workers' wages. | A growing economy also means the government receives more money in taxes. So it can cut taxes, or spend more on benefits, public services and government workers' wages. |
When the economy shrinks, all these things go into reverse. | When the economy shrinks, all these things go into reverse. |
Are we in recession yet? | Are we in recession yet? |
Most of the developed world, saw economies shrink between January and March, as coronavirus hit. UK GDP fell by 2.2% in that first quarter. | Most of the developed world, saw economies shrink between January and March, as coronavirus hit. UK GDP fell by 2.2% in that first quarter. |
Monthly figures show there will be an enormous hit to the economy in the second quarter of 2020. The three-month period from March to May saw GDP fall by 19.1%. | Monthly figures show there will be an enormous hit to the economy in the second quarter of 2020. The three-month period from March to May saw GDP fall by 19.1%. |
So when the final April to June figures are published on Wednesday, they are almost certain to confirm the UK is in a severe recession. | So when the final April to June figures are published on Wednesday, they are almost certain to confirm the UK is in a severe recession. |
The International Monetary Fund (IMF) predicts huge falls in GDP for 2020 as a whole - an extraordinary fall of 8.0% for the US and 10.2% for the UK. | |
It estimates the entire world economy will shrink by 4.9% this year, making it the worst recession since the 1930s' Great Depression. | |
How could a recession affect me? | How could a recession affect me? |
Some people may lose their jobs, or find it harder to get promotions, or a pay rise. | Some people may lose their jobs, or find it harder to get promotions, or a pay rise. |
Graduates and school leavers could find it harder to get a first job. | Graduates and school leavers could find it harder to get a first job. |
The Bank of England said the UK economic slump will be less severe than expected, but recovery will take longer. | The Bank of England said the UK economic slump will be less severe than expected, but recovery will take longer. |
It expects the economy to shrink 9.5% this year, compared with an earlier estimate of 14%. | It expects the economy to shrink 9.5% this year, compared with an earlier estimate of 14%. |
It added the UK still faces its sharpest recession on record. | It added the UK still faces its sharpest recession on record. |
However, the pain of a recession is typically not felt equally across society, and inequality can increase. | However, the pain of a recession is typically not felt equally across society, and inequality can increase. |
For instance, many UK homeowners who kept their jobs during the last recession did OK. Mortgage interest payments for many fell considerably, leaving them with more spending money. | For instance, many UK homeowners who kept their jobs during the last recession did OK. Mortgage interest payments for many fell considerably, leaving them with more spending money. |
Others, such as benefit recipients or public sector workers, did less well. | Others, such as benefit recipients or public sector workers, did less well. |
How long was the last recession? | How long was the last recession? |
In the UK the last recession, caused by the global financial crisis, lasted five quarters - from the second quarter of 2008 onwards. | In the UK the last recession, caused by the global financial crisis, lasted five quarters - from the second quarter of 2008 onwards. |
GDP fell by an estimated 7.2% over the whole period. | GDP fell by an estimated 7.2% over the whole period. |
Unemployment rose sharply, but began to fall back again two years later. | Unemployment rose sharply, but began to fall back again two years later. |
And there was a massive deficit - the gap between what the government raises in taxes and what it spends on public services. | And there was a massive deficit - the gap between what the government raises in taxes and what it spends on public services. |
This resulted in a near-doubling of the national debt, and a decade-long programme of austerity. There were steep cuts in many areas of government spending, except health, education and international aid. | This resulted in a near-doubling of the national debt, and a decade-long programme of austerity. There were steep cuts in many areas of government spending, except health, education and international aid. |
When will the recession end? | When will the recession end? |
The IMF predicts the recession will be over next year and the world economy will start bouncing back, but no-one knows how strong that recovery will be. | The IMF predicts the recession will be over next year and the world economy will start bouncing back, but no-one knows how strong that recovery will be. |
If all the businesses which shut during the pandemic reopens quickly, the consequences would be less severe. | If all the businesses which shut during the pandemic reopens quickly, the consequences would be less severe. |
However, there are fears over future spread of the virus, and people may not want to travel or go out, so the consequences will be felt for many years. | However, there are fears over future spread of the virus, and people may not want to travel or go out, so the consequences will be felt for many years. |
What can be done? | What can be done? |
The discovery of a vaccine would help create a strong recovery, but until then, there are a few remedies available. | The discovery of a vaccine would help create a strong recovery, but until then, there are a few remedies available. |
In the last recession, central banks cut interest rates, so people and businesses could borrow more easily, and had more to spend. | In the last recession, central banks cut interest rates, so people and businesses could borrow more easily, and had more to spend. |
But interest rates are already close to zero in many places, and a further cut may not be possible. | But interest rates are already close to zero in many places, and a further cut may not be possible. |
Governments around the world are already borrowing huge sums to support their economies, but that borrowing comes at a cost. | Governments around the world are already borrowing huge sums to support their economies, but that borrowing comes at a cost. |