#coronacrisis Part 2: This is a recession.
Updated: Aug 22
WTF is this blog about!?
The Coronavirus first emerged in Wuhan, China in December 2019. Since then, it has made its way across the globe, sending entire countries into 'lock down' for months on end.
This global disruption to production lines, reduced consumer spending and increased unemployment has led to experts predicting a deeper recession than the 2008 Global Financial Crisis (GFC) 😲 (if you don't know what I'm talking about, watch #thebigshortmovie whilst you're in quarantine - it sums it up quite nicely).
But WTF is a recession? How is it caused and how will it effect me?
What is a recession?
A decline in GDP, or Gross Domestic Product (which is the measurement of the size and health of a country's economy i.e. the total value of goods and services produced by a single country) over two consecutive quarters (i.e. 6 months) #toomuchterminology. So technically, we're not in a recession yet.
What has caused the #coronacrisis?
Much like the water cycle (throwback to KS2 science), money flows through a series of stages, which is summarised in the diagram below.
From this diagram, it is clear to see that any disruptions will have a knock-on effect on the next stage of the cycle. And when a large disruption happens, it can negatively impact the whole chain, this is what causes a recession. Let's go back to my water cycle analogy - a key disruption is global warming. The higher temperature is leading to increased evaporation, which means that there's more rain and therefore more flooding.
In the case of #coronacrisis, global warming is the virus. The yellow boxes in the diagram below highlight where social distancing has had a negative impact on money flows).
As an example of how this money flow works in real life, take Topshop on Oxford Street. With the country on lock-down, Topshop has fewer customers and therefore earns less money. This makes it difficult for them to be able to a) pay their rent and b) pay their employees. This then means that the people who work for Topshop have less money and they then struggle to pay their rent/mortgage, they also have less disposable income to spend in other shops, which kicks off the whole cycle again.
What are people doing about it?
You might have heard people say that the level of monetary policy (central banks i.e. The Bank of England) and fiscal policy (which is just a fancy name for how the government spends its money) intervention in attempt to minimise the economic impact of the Coronavirus is far greater than anything we've seen before - but WTF does that actually mean?
In terms of monetary policies - The Bank of England has cut interest rates. This means that banks can borrow money at a lower rate, enabling them to offer cheaper loans to businesses (to help them stay afloat) and to consumers (to help them inject money into the economy by buying things). Sadly, this also means that we'll get less money for saving with a bank 😞 (although you could put your money into a cash ISA to receive a slightly higher interest rate on your savings - I'll explain more about this in the eBook I'm working on #staytuned).
In terms of fiscal policies - (i.e. the daily updates from Rishi) the government is investing a f*ck tonne into the economy through covering the cost of wages - the aim of which is to stop companies from laying off their employees because they can't afford to pay them. The government are able to do this because interest rates are lower and so this debt is more affordable (notice the chain forming?). The government have also told landlords that they must give renters a 3-month rent holiday if they ask for it and they will not be allowed to evict any tenants during this period.
In addition to all of this, large banks are also offering mortgage holidays, which allow you to take a break from paying your mortgage whilst you're out of work (although note that this is not free money - it will be added onto the total amount you owe and will continue to grow with interest - so only request this holiday if you really need it, because you will have to pay the money back eventually).
What can you do about it?
During these strange and difficult times, there are a few things you could be doing to help your financial sitch:
1. Use this website to find out whether you're eligible for any of the government support I mentioned above;
2. Take the opportunity to get your financial s*!t together:
Remove all the BS from your bank statement; obviously Netflix is an absolute essential right now, and you don't want to be cancelling anything that's helping to keep you sane, but you should look to pause or cancel subscriptions that you no longer need. For example, I've paused my #citymapperpass because I'm no longer commuting to work. I've also paused my #classpass subscription because I now do #thebodycoach workouts from home (jk, I've done zero exercise).
While you're at it, why don't you also use a comparison site to get a better deal on your internet and utility bills? Because, let's face it, we're going to be spending a lot more in this department over the coming weeks (or months, who knows!?).
Times are s*!t rn but with unprecedented levels of monetary and fiscal intervention, there's plenty of support available if you're struggling (you can find out what help you're entitled to via this website). On the flip side, one positive to take from this is that being in quarantine gives us plenty of time for #selfcare, so why not spend some time getting your financial s*!t together?
Now for the serious part: my blogs are for educational purposes only; they do not constitute financial advice. Please consult with an independent financial advisor for advice on your specific circumstances.