- 9:36 am September 14, 2016
Recession Economics: Radical Transparency and Effective communication of policies needed to turn the corner.
A recession is a time when there is a general slowdown in economic activity.For example, if Adesanmi, a baker, produces 2000 loaves of bread in 2016 as against 3000 rolls produced in 2015, the business is said to be in recession.
Thus, fewer goods and services are produced and sold.If the tight economic condition continues for two consecutive quarters( 6 months), a country is said to be in recession.
The total value of service and goods manufactured in Nigeria is called the Gross Domestic Product.In the first six months of 2016, total economic activities (GDP) contracted. In another word, Nigeria is in recession.
Recession triggers abnormally large increases in unemployment.
Business owners need fewer workers since they are producing fewer goods.Most business owners start cutting down their workforce in anticipation that they will sell less.
The fear becomes a reality as few people are employed and become the only few available to buy goods and services produced.The unemployment rate in Nigeria is increasing sharply, and hence income level is dropping.
People start cutting down on spending because they may lose their jobs. Buyers of goods and services dry up, and suppliers cut back on production and investment yet again. That triggers another round of correction.International trade level also starts dropping. As businesses import and export less raw materials in dollar terms.
Nigeria’s economic woe is abnormal because while unemployment level is increasing sharply, economic activities are contracting, income level is dropping, yet the price of goods and services are increasing dramatically.
The inflation rate, a measure of price level within the economy is trending up. At 17.1%, Nigeria’s monetary and fiscal authorities have a huge problem and the direction for correcting the economic cycle is increasingly more challenging.
A critical index for measuring a healthy economy is when Income level is rising faster than the inflation rate.What is the way out? Most economists agree that massive cash injection is critical to ending the cycle of recession.
Opinions differ on how to inject the fund. Some believe government can do the magic by borrowing big, and spending on infrastructure among others, and the Federal government of Nigeria seems to be following that lead.
Massive government spending could translate to more jobs which in turn reverse the apprehension and set the economy in a positive direction.Other supply-side economists disagree. They often point that it takes time before the effect of government spending can lift business.
Most point fingers at the bureaucratic process of the government.They believe encouraging businesses with tax breaks, cheaper lending rates among others are the best tools critical to restarting the growth engine.Down-up Economists disagree. They think any form of stimulus should be directed at consumers, not businesses.
Most will advocate for a reduction in personal income tax, cheaper food, transportation subsidy, more affordable mortgage rates and lower personal income tax rate among others.
All, however, agree with one thing: expectation and perception about the economy are critical to restarting the growth engines and ending the cycle of recession.
At BudgIT, we believe it is more critical for any economy in recession at the national and subnational level to open up their books and efficiently communicate plans for the future.
Article by Atiku Samuel.