How does a recession affect me?

Blog: How will a recession affect me?

Written by Money Empire

July 20, 2022

There are headlines being thrown around about a New Zealand recession looming, making us all wonder, well, how does a recession affect me? Let’s chat through everything ‘recession’ to hopefully mitigate risks and fears, and make sure you’re covered for whatever is about to come. 

What is a recession?

The official definition is a drop across two or more consecutive quarters in gross domestic product (GDP) – the economy has gone backwards over the last six months. People tend to get scared of doing a anything when this happens, that they don’t invest money, they don’t hire, and cut back on a lot of spending, which only exacerbates the drop. 

Why do people think there’s a recession in New Zealand?

Here at Money Empire, we found everything to be… Almost easy (take that with a grain of salt). New Zealanders weren’t able to spend their money on one of their favourite pastimes – travelling – so threw it into another sector: housing. During this time where money was cheap and the economy was shut down, and being kept afloat through the Government reserves, it seemed any ramifications of this were yet to arrive.

Until now. Supply chains are in a tight spot (including the infamous Gib situation) and it is taking a long time for anything to arrive from overseas. Inflation is on the rise, and the Reserve Bank of New Zealand is hiking the OCR to higher than it’s been in a couple of decades to keep this under control. 

Earlier in June, the United States Federal Reserve Bank hiked its interest rates, meaning the global sharemarkets dropped significantly – what has been dubbed as a ‘bear market’. The definition of this bear market is when a major United States stock (think the S&P500) drops 20% or more from their peak for a prolonged period of time. Note: these situations are pretty rare and do often indicate a recession or an economic downturn. While our wee slice of heaven in the corner of the world is often sheltered from external factors, the global markets do dictate how the rest of the NZ economy goes. The NZX50 is down nearly 20% since the start of the year, and cryptocurrencies (albeit unregulated and volatile) are also dropping significantly. 

What is most alarming about this time in the economy?

Kiwis are lacking in faith and trust, according to ANZ Bank’s survey of business opinion for June. What we’re seeing is the business confidence index has dropped to -62.6, nearing our current record low of -66.6 right before the pandemic’s first lockdown in April 2020. People have understandably pulled back on any additional discretionary spending, tightening up their wallets, all with the intention that maybe they can survive this. 

On top of this, we have been in and out of lockdowns, generally slowing down the economy, the OCR is lifting causing interest rates to rise, and the stock market is volatile. 

What is out there at the moment?

Back in 2011, popular show Parks and Recreation brought out ‘Treat Yo Self’ – introducing a day per year where people pamper themselves and indulge in random, expensive splurges. This was only just after the 2008-2009 Global Financial Crisis, where people started to look at little treats as something to look forward to. 

What we’re seeing now, with all of the happenings across the world, is people are leaning into ‘f*ck it money’ (or in Korean – Sibal Biyong). The basis of it is that the future is bleak, the present is hard enough, why not spend extra on the uber instead of taking the bus? 

In a very stark contrast, we’re seeing families tighten up their wallets, including on such necessities as whiteware, groceries, and all of their other bills, lacking confidence in their major purchases. People are both afraid and unafraid to spend money freely, which can cause tension. 

One headline can make shockwaves through the media – from journalists twisting consumer confidence into a recession headline to not-experts weighing in to share their thoughts. All it really does is give people biassed information and skewed data, which doesn’t help people at all. 

What do we reckon about a recession?

We live in a world where people, routines, patterns, the economy, everything is cyclical. This means things always come back down – and they go back up until they meet the equilibrium – so it’s okay to sit back and just ride this out. We’ve also noticed people are fearful, trying their best to hide it and scurry away from the realities they’re facing, and get scared of doing things, often not seeking financial or business advice. 

No matter the situation you’re in, reaching out and getting solid financial advice is the easiest way to protect your future and keep building on it. Remember that nothing lasts forever, economies work in cycles just like property and the sun will continue to rise.

By reaching out and asking for help, you will give yourself and your loved ones peace of mind.

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