As can be understood from the name, stagnation is a still period in the economy. In a period of stagnation, the economy does not grow or even decline even if only slightly. When we have economic growth that is below 3%, we can already start talking about stagnation!
In these periods, the main characteristics are a high unemployment rate, in relation to the normal rates that occur when the economy grows, a high part-time employment rate, and much less money in circulation. We have repeatedly said that our economic system is based on the exchange of money which is in turn favored by credit. When we find ourselves in a period of stagnation, people work less, therefore they earn less, and consequently, they spend less. All this, however, at levels not too critical to send the economy into recession, or to continue it.
I am talking about the continuation of a recession since economic stagnation can precisely coincide with the end of a recession. Normally recessions, especially if prolonged and violent, increase unemployment rates by a large number, once the recession is over, people will start spending again. This, however, is not something immediate, it takes time and people need calm and tranquility, therefore unemployment levels remain relatively high in this period, people are not yet worthy of receiving credits, therefore the economy still it does not start strongly, and therefore we have a period of stagnation.
If we look at the stock markets, which are a bit of a reflection of the economy, we can identify the periods of stagnation, with the prices of the most important indices that remain more or less on the same level, they do not grow! Just like the economy! An example is the period between the 60s and 80s in the United States, where the S & P500 was crossed by short periods of rising followed by short periods of fall, with prices that in fact did not go anywhere, and so also the economy.
But what does all this have to do with coronavirus? Well, because of the coronavirus we have all been forced to stay at home, this has reduced consumption in many sectors, decreasing consumption has reduced human resources, reducing wages and consequently the purchasing power of people. Companies have obviously also been hit hard, as they have become less reliable, since they produce and earn less, let alone worthy of credit, the economy slows down and a period of recession starts, the one we are going to against now.
Once the coronavirus problem is eradicated or marginalized, people will start working again, but many will have lost their jobs, and companies still will not be able to hire too many employees as they still suffer from the recession. Consumption will still be low and unemployment levels still high, making the economic cycle very very slow. This period seems to be just a period of stagnation.
What could, therefore, be expected after the coronavirus at an economic level, is precisely a period of slow hospitalization, where the help of governments and the maneuvers of central banks will be crucial to revive the economy!
Of course, these are only hypotheses, but I think it is important to realize what could be going forward, so be prepared and know what to do! In any case, I'm not an expert and I'm definitely not an economics graduate! This is what logically seems possible to me!
Obviously, all this will have a huge impact on many families, there will be people who will lose their homes and people who will no longer be able to pay their bills! For these reasons, as mentioned above, help from the government is essential, and this is exactly what is happening in all the major economies right now! An example of this are the bailouts of the European Central Bank and the Fed.
But hey, if we are just meeting: it's Dario, and this is Divity Finance, a platform where we can share our best tips and tools when it comes to trading, investing or finance in general.
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Important notice: I don't give trading signals. Everything in this video is a personal opinion and shouldn't be taken as advice. This content is not presented, offered or intended as professional or expert advice, and is not to be used as a basis for financial, legal, or other decisions.
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12 сен 2024
