What is an economic recession and how does it affect you?

For some experts, Mexico shows signs of an economic recession due to little, no or negative growth shown by some economic indicators, but if the term does not sound familiar and you do not know how it could affect you, a specialist from Tecnológico de Monterrey explains it.

Economic recession produces a vicious circle in which production decreases and consumption decreases, and as consumption decreases, the production and lower jobs. Stock image
Economic recession produces a vicious circle in which production decreases and consumption decreases, and as consumption decreases, the production and lower jobs. Stock image

According to the dean of the Business School of this academic institution, Gabriel Morelos Borja, to speak of recession means that the country's production of goods and services contracts or decreases during two consecutive periods, which has an impact on the generation of jobs and the availability of money among the population.

"It's a very technical term, exactly two consecutive quarters in the contraction of the total production of the economy."

In a recession, companies stop hiring labor because they sell less, which results in the amount of money available in the market going down. There is less confidence in the consumer and less confidence in the investors, and those figures are already being seen, the problem is that it produces a vicious circle in which production decreases and consumption decreases, and as consumption decreases, the production and lower jobs.

To the question of whether Mexico is close to going through an economic recession, Morales Borja responded that technically the country does not go through this cycle due to the fact that figures are not released to the second quarter of this year on the production of goods and services, since that close June. However, the country requires public policies and agreements with the productive sector to revitalize the economy.

Currently, the Federal Government presents a sub-exercise in the budget; for example, in infrastructure, an important factor of economic activity, which has fallen 16 percent, compared to the previous year.

"The government has decreased its current spending, but physical investment has also decreased a lot, so there is a very important element that can make a differential in a recession or not. From the public sector, confidence has to be fostered in the productive sector, both national and foreign investors, stable policies are required to ensure to some extent that their investment plan will work as proposed."

The rating of Petróleos Mexicanos (Pemex) and of Mexico by Fitch Ratings are alerts that must be resolved.

Source: Milenio

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