What is a recession and why you should care

Unless you’re a secret billionaire or a greasy landlord, you’ve probably noticed that life these days is becoming a bit of a struggle. Over the past two years, the cost of living has increased by 7.3 per cent, leaving most household incomes struggling to keep up. The reason for this is because we are entering a global economic recession.

For those of you saying, “a global, economic…what now?”, a recession is a period in which economic activity significantly declines due to drastic structural shifts in a financial system. The Covid-19 pandemic and Russo-Ukrainian war are the two primary causes for our current recession, which has been deemed the worst since the post-World-War-II years.

“The global economy is extremely volatile and New Zealand is not alone in experiencing higher prices, with inflation at 40-year highs of over 9 per cent in the United States and the UK,” says Finance Minister Grant Robertson.

Immediate effects of a recession include the rising of unemployment rates, falling average incomes, decreased financial opportunities, increased cost of goods and services, and the slowing of general economic activity. Long term effects include the rise in public debt, higher rates of child malnutrition, stunted development and under-academic achievement, a decline in overall mental health and wellbeing, and an increase in the wealth gap.

Although a global recession affects just about everybody, students are undoubtedly among those facing the brunt of it.

“Students are struggling, significantly. The minority of students who today can access the allowance are in real terms hundreds of dollars worse off a month than students even a decade ago, which is nothing on when education was effectively free prior to the 1980s,” says Chlöe Swarbrick.

However, before we all go and sink further into our bubble of despondency and abandon all hope for the future, there are still some tiny slithers of light to hold on to. Compared to the rest of the world, New Zealand is still among the top-ranking countries in terms of resilience against recessions.

“We know that inflation is rising across the world, and cost of living pressures are making it tough for New Zealand right now. High fuel prices, particularly driven by the impact of the Russian invasion of Ukraine, are a global problem affecting households and businesses in New Zealand,” Grant Robertson said. 

“We have the first cost of living payment going out in two weeks’ time. This payment will support an estimated 2.1 million people aged 18 and over for a three month period,” Grant Robertson said. 

Additionally, the Government has also announced a series of support strategies which will help New Zealanders stay afloat during this global crisis. These strategies include fuel cost reductions by 25 cents per litre until 31 Janurary; an equivalate reduction in road user charges; half price public transport; parental leave payments boosted by $40 weekly; free school lunches for more than 211,000 children; cheaper GP visits for more than half a million people, and a Best Start payment of an additional $65 a week for parents of newborns.

It is a tough time for everyone, but the best thing we can do right now is be frugal, be optimistic, and know that recessions don’t last forever. Eventually, prices will drop once more and when that happens, we can all fly out to a tiny private island and sip margaritas on the beach to celebrate.