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Are you worried there's going to be a recession? This is what can happen, according to experts

2022-06-30T13:56:59.709Z


Unemployment will skyrocket and inflation will continue to skyrocket, but home values ​​won't change much. "For the average citizen, the situation will not be good," says an analyst.


By Michelle Fox -

CNBC + Acorns

In recent weeks there has been a lot of talk about the possibility of the economy entering a recession.

Inflation is at its highest level in the last 40 years.

Stock prices sink.

The Federal Reserve (Fed) raised the cost of loans.

And the economy has contracted in the first three months of this year. 

But what exactly does that mean and how can it happen?

A group of people wait to be interviewed for a job. Jim Young/Bloomberg via Getty Images

A recession is defined as a general and significant decline in economic activity that lasts for more than a few months, according to the National Bureau of Economic Research.

Ultimately, it's an unavoidable situation that plays out over the course of the normal business cycle, according to Mark Hamrick, an economic analyst at Bankrate.

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"It shouldn't be shocking that they occur. It's usually the timing, the cause, and the depth and duration of them that take people by surprise," he says.

The risk of recession

Experts are keeping a close eye on the economy, and many believe the chances of a recession are high anytime soon.

Citigroup, in assessing global economic growth over the next 18 months, sees a 50% chance of a global recession;

Goldman Sachs calculates that there is a 30% chance that the country's economy will contract next year.

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However, not everyone is convinced that it will happen.

The UBS bank, for example, has a base forecast of no recession.

Mark Zandi, chief economist at Moody's Analytics, also believes that, as things stand, it is unlikely to happen.

"The economy is slowing down and it's going to be uncomfortable for the next 12 to 24 months, but I think we'll get through without a recession," he says.

It should not be ruled out, however, that something could happen that could change the course of this projection.

"We are very vulnerable to anything else that could go wrong because things are so fragile," Zandi stresses.

The economy stalls

Still, the Moody's Analytics chief economist's prediction still means economic turmoil is ahead.

“The economy is going to grind to a halt, which means months where job growth will be poor or negative,” he said.

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Unemployment will begin to rise, being able to reach 4% or 4.5%, while inflation will continue through the roof, although it will moderate, according to the expert.

On the other hand, Zandi does not expect stock prices to change or home values ​​to decline.

In the best of cases, it stands out, there will be no changes or it will be very light.

"For the average citizen, the situation will not be good," he stresses.

What happens in different types of recession

The length and depth of recessions are characterized by their shapes.

For example, a V-shaped recovery is rapid, with a steep descent to bottom followed by a dramatic rise.

In a U-shaped recovery, by contrast, the economy spends more time in a rough patch and then gradually recovers.

W-shaped recovery occurs when the economy goes through a recession and recovers to immediately enter another recession.

K-shaped recovery means that some sectors of the economy recover faster than others.

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What does a "typical" recession look like?

A typical post-World War II recession lasted six to 12 months, says Zandi.

The most recent recession experienced occurred in 2020 and it was brief: it only lasted two months.

The longest recession after 1948, the Great Recession, spanned 18 months, from December 2007 to June 2009.

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In a typical recession, the economy typically loses between 3 million and 4 million jobs, and unemployment can reach 6%, according to Zandi.

The stock market may fall another 5% to 10% and home prices nationwide may decline 5% to 10%, he explains.

This does not necessarily mean the same thing will happen if the economy goes into recession.

Right now, the fundamentals of the economy are good, says Zandi.

"There's a very good chance that [if] we do have a recession, [that it] will be less severe than a typical one," he predicts.

Prepare for the possibility of a recession

Whether a recession hits or not, you have to be prepared.

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"I advise people to prepare for the possibility, pay off debt, save money and consider putting off big purchases," says Hamrick.

"If there is a slowdown, I think there is a chance that it will be relatively short and shallow," reiterates Hamrick.

"It doesn't have to be ruinous."

This article is part of the 

Invest in You: Ready series.

Set.

Grow

 (Invest in you: Ready. Ready. Grow), an initiative of CNBC and Acorns, the micro-investing app.

NBC Universal and Comcast Ventures are investors in 

Acorns

.

Source: telemundo

All news articles on 2022-06-30

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