“Sell Everything. 2016 Will Be a Cataclysmic Year!”
That was a warning from the Royal Bank of Scotland at the beginning of the year, predicting unemployment, inflation and other disasters. They meant, play it safe by getting out of investments as soon as possible because everything except high quality bonds were predicted to crash. There were many red-flag reasons for this prediction, major of them being debt, falling oil prices and weak corporate loans.
The decreasing Industrial production in the US, cost cutting, unemployment and inflation are the reasons why the economies of developing countries like India are also affected. How bad could it get? Six months into 2016, what is the stance now? The odds haven’t improved. In fact, economists throughout the world fear that 2016 will be as bad as the great depression back in 1929.
What Factors Lead to Scare of Global Recession?
1. Outstanding student loans in the U.S. alone add up to $1.2 trillion, which is more than the GDP even of some developed countries.2. China plays a key role in the global economy, with the second highest GDP in the world. But the Chinese economy has not been very stable lately. As a result of overproduction, the new cities that China built are mostly unoccupied, and the real estate market has taken a hit due to oversupply. They are now being demolished.
3. European countries like Greece and Portugal have been repeatedly bailed out of crisis by the European Union, but there are some conditions imposed. Greece is looking to reject those EU bailout terms and leave the European common currency, which if followed by other countries, would result in the collapse of Euro.
4. Unemployment is already on the rise in the U.S. with the U6 unemployment rate at almost 10%, and the real wage has remained steady for long, which indicate the lack of economic growth.
Predicted Impact of Recession on Companies
The fear of meltdown has already affected a lot of investors and therefore the companies. While economists are predicting levels of damage and various damage control measures, no one can be sure of the outcome. What’s for sure is that the following are bound to happen on some level.
1. Reduced industrial output
2. Unemployment and reduced job opportunities
3. Stock markets in new low
4. Real estate market fumbles
5. Inflation increases
6. Corporate bankruptcy
The condition was predicted to worsen and CNN wrote, investors should now be thinking about getting a “return of capital, not return on capital.”
At this time, it would be good business even if they get back only what they invested. This is the reason why many highly talked-of startups have scaled down drastically, or even closed shop. The turmoil has also had its effect on e-commerce giants like Flipkart, which is now seriously rethinking its hiring decisions. L&T too has withdrawn more than 1500 job offers that it had issued this year.
What Would it Mean for Students?
There is a scarcity of money floating around, and therefore job opportunities too will be scarce. This is the time when everyone tends to get frugal. As a measure of cost-cutting, hiring new employees will be stalled. Many existing employees will be let go. A noteworthy point is, the ones who get to stay employed through the burst of the bubble are the irreplaceable ones who found a niche for themselves and excelled at it. It is important for students that they pursue careers in a field that they are really passionate about. Only when you do what you really believe in, will you put your heart into it. This motivation alone can help you stand the test of time. This is an age when inflation is not just in the economy, but also in education and skill-sets. A job that required a bachelor’s degree a decade ago, now requires additional educational qualifications or skills. Employers expect the workforce to be job-ready right out of college, and education inflation demands specialisations and continuous updation of skills.
Consolation is, the economy has recovered after every dip it has experienced, so this time too, it will get better eventually. But it is going to be a rough ride to endure.