Technically, a recession is defined as a situation when the economy declines during two successive quarters – continuously for six months.
Practically, we cannot determine a recession over six months when growth is a long-term trend variable. By the time the economy contracts for two successive quarters, it has already been in a recession for a while
The National Bureau of Economic Research defines recession as a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in declining real GDP, real income, employment, industrial production, and trade. Indicators such as increased loan write-offs, reduced corporate profits and taxes, slowdown in real estate activity, and a struggling consumer community – all of which are visible in Uganda – should not be ignored when determining a recession.
Economic analysts are asking government to urgently re-think a broader national economic policy that will shield all Ugandans from looming economic recession.
According to several economic indicators, the downturn in the economy started at the end of last year. Probably the biggest worry to the economy comes from the balance sheets of banks.
This is reflected in the just concluded take over management of Crane Bank by the central Bank because it was significantly under capitalized, a situation that posed caused a systemic risk to the entire financial system which experts are saying are a sign of a bigger economic problem.
- First, the economy is already growing at a slow pace, meaning that otherwise minor issues—let alone major ones—could push it into negative territory.
- Second, many are concerned about the unrest in the neighboring economies of South Sudan and DR Congo, which are some of the biggest markets of Uganda in the region.
- Third, declining business investment is making economists nervous; spending on capital goods has declined 12 percent since the election period.
- Finally, they point to the uncertainty surrounding the banking sector as a possible recession catalyst.
Experts have always warned and maintained that it is wrong for government to borrow from Commercial Banks and invest in construction of long term projects like roads and power dams which do not yield returns in short term.
Given below are five other signs that usually indicate that a recession is knocking.
The Rate Of Joblessness Assumes Disturbing Proportions
Usually, the rate of jobless people remains steady every month. But if there is a constant, steep rise in that number, then this could be a sign of recession.
Large Companies Start Giving Depressing Profit Figures
When many companies across all sectors start giving out depressing sales and profit figures, then alarm bells should start ringing.
Borrowers Start Defaulting
When borrowers are unable to pay back their loans on homes, vehicles, businesses and credit cards, then this could be another indication of a falling economy.
Prices Of Essential Commodities Shoots Up
When prices of food, fuel and other utilities shoot up – and the government seems helpless to do anything – then it could be said that inflation is fanning the flames of a possible recession.
Companies Stop Filling Vacancies
When companies decide to keep their job openings vacant instead of hiring new staff, then this again is another sign that a recession has afflicted the economy. Many companies might also offer voluntary retirement programs in order to reduce their work forces and cut expenses.
Are we seeing these signs in the Economy?