Recession Fears 2023: How Real Are They?

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An economic recession is a period of economic decline in a country or larger area that can lead to a higher cost of living, increased unemployment, and other negative economic effects. After the economic effects of the COVID-19 pandemic, many economists and politicians are forecasting a recession in 2023, so should you be scared of this? Read on below to hear what economists are saying about the potential 2023 recession.

What causes a recession?

The primary thing that may lead to a recession is when the Federal Reserve raises interest rates to combat high interest rates. This is certainly the case right now, as interest rates in December 2022 came to their highest peak in 15 years. Additionally, the Federal Reserve indicated that rates will most likely remain high throughout 2023.

The indicator typically used to officially measure whether a recession is taking place is the national GDP, or gross domestic product. In order for a recession to be announced, what typically needs to happen is two straight quarters of negative GDP growth.

What are economists saying?

According to economist Tom Simons, we’ll begin to see a recession by the middle of 2023. While talking about companies beginning to lay off employees, Simons said, “We’ll see that by the middle of next year, and that’s when we’ll see economic growth slowdown significantly and inflation will come down as well.”

One thing that actually speaks positively to the situation is the fact that everyone is expecting a recession, which has rarely been the case in the past. in the past, recessions have typically come as a surprise, so there hasn’t been time to prepare. According to economist Mark Zandi, “The irony here is that everybody is expecting a recession.” These expectations could cause people to change their financial patterns and potentially keep the recession from even happening.

How severe could the upcoming recession be?

While most analysts and economists agree that there will probably be a recession toward the end of 2023, there isn’t a consensus as to how severe or how long this recession could be. You can, however, look at other recessions in the past to estimate what this coming recession might look like.

The example that immediately comes to mind is the unofficial recession that took place at the peak of the COVID-19 pandemic. While not declared a recession since there weren’t technically two consecutive quarters with negative GDP growth, the GDP dropped quickly enough during this period for many to call it a recession. The worst part of the COVID-19 “recession” was from February 2020 to April 2020, when the GDP dropped a total of 14.7%, a higher rate than had been seen since 1937.

The biggest recession in recent American history was the “Great Recession” of 2008, which lasted for 18 months. This recession officially started in December 2007 and ended in June 2009. This recession was caused by the subprime mortgage crisis and the successive collapse of the housing bubble.

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