How will US Recession Impact You (and India) & What Can You Do Now?

The whispers (or rather noise) of an imminent recession in US have been virtually for a year now. And if we were to believe in all that is there on social media, then 2023-24 is the year when US will see a recession. Mild or not, I have no idea. I am no economist. But the risk of recession has no doubt escalated given the recent US wall failures, Fed hiking rates and tightening credit, and financial instability wideness many ripened nations.

The possibility of a recession in the US leading to job losses in IT and US-linked sectors, a major correction in global and Indian stock markets, are just few of the things that are stuff discussed among those at risk.

To be honest, a global recession, if there is one, will definitely not leave India unscathed. While the country’s fundamentals protract to remain strong and fairly stable, it would be foolish to believe that there will be no impact here at all. But I finger that the Indian economy is well-positioned to cocoon itself from the impact of a US recession in the short term. And Indian economy is highly resilient and in fact in much largest position compared to many other large countries globally, in terms of its economic future.

So while a recession in the US is unseat to impact the Indian economy to some degree, I don’t expect India to go through a recession. A slowdown may be possible but recession is extremely low probability outcome. And plane if there is a setback of slowdown here, the country is expected to comeback much stronger as has unchangingly happened in the past recessions.

(Reminder – I am no economist and these are just my ramblings.)

Talking of past, the current slowdown/recession is stuff blamed on US Fed. And if you squint at historical data, this is not rare. There have been many Fed-induced recessions earlier. And whenever that happens, India experienced 1.5-2.5% slower growth. As this TOI vendible (link) points out – Recessions caused by the Federal Reserve is not uncommon. However, the good news is that these recessions that are caused by Fed’s tightening of rates are usually shallow and short lived, lasting a few quarters only and with stereotype GDP declines of less than 1%.

Remember the truism – ‘When America sneezes, the world catches cold’? That is still true, to an extent. Hence a recession in the US economy will impact global and Indian stock markets.

As per the latest IMF World Economic Outlook Update (link), The growth in India is set to ripen from 6.8 percent in 2022 to 6.1 percent in 2023 surpassing picking up to 6.8 percent in 2024, with resilient domestic demand despite external headwinds. Compare this with other countries in image unelevated and you will know that you are lucky to be in India right now.

What can you do?
In an interestingly titled vendible How to Survive a Recession and Thrive Afterward? (link) in Harvard Business Review (HBR), the tragedian talks well-nigh corporates and how they do and should deal with recession. I know we are talking well-nigh individuals and personal finance. But stay with me. The tragedian of the vendible says – The difference maker was preparation. Among the companies that stagnated in the produce of the Great Recession, few made contingency plans or thought through volitional scenarios. When the downturn hit, they switched to survival mode, making deep cuts and reacting defensively. Many of the companies that merely limp through a recession are slower to recover and never really reservation up.

So just like the corporations, plane you need to squint at how prepared you are. If you finger your job, industry is vulnerable, then you need to prepare therefrom and hope for the best. Don’t just pray (that nothing happens) and do nothing. It is time to act and prepare.

Recessions can create wide and long-standing gaps in the financial life of people who are prepared and those who aren’t.

So your main focus, if you think you are at risk, should be to be part of the ‘prepared’ side of the population.

If you finger your job is a bit vulnerable or you see people virtually you stuff laid off or finding it tough, then here is what you should do:

Relook at your expenses. Not all your expenses are mandatory and some are obviously unnecessary. It is time to rationalize and cut the flab. Try asking yourself how to reduce your monthly expenses and you will see some patterns emerging.
Next, if you still don’t have an emergency fund, then that’s a red flag. Emergency funds can help you take superintendency of expenses in specimen your regular income stops for any reason. Ideally, you should have an emergency fund that covers expenses for at least 6 months at all times. And the money that you saved up by wearing few expenses on previous step, can moreover be used to prop up the savings for emergency fund. And if you are employed in a sector in which you may find it tougher to get flipside job, then having a larger emergency fund is advised.
If you have a credit vellum and some outstanding on it (remember that credit vellum interest rates are tropical 40% per year) or a personal loan, try to use your unutilized funds (but not from emergency fund) to well-spoken them off as soon as you can. Prioritize paying off these upper interest debts/loans and do not take up any new loans or make unnecessary expenditures.
If you are worried that you may lose your income due to the slowdown, then it would be smart to hold off on any financial decisions that would lock you into hefty EMI payments for several years, like a car loan or plane a new home loan.
If the whilom points are taken superintendency off, then you can squint to goody from a slowdown. Yes, you read it right. If economy is not doing well, then stock markets may moreover be down. Market may not crash sharply but it may not do too well and you may get some good opportunities once in a while to invest at lower prices. If you are in a kind of financially stable position, then you can use surplus money to invest as and when such opportunities arise. It is what we undeniability as Buying the Dip. For long-term investors, a market downturn is well-nigh taking wholesomeness of low prices and this is why many such investors love withstand markets. But remember that this point is only for those who have fairly reliable jobs and have once taken superintendency of previous points. Never try to use your emergency fund savings to invest in markets.
Apart from finances, try to wilt indispensable or as tropical to indispensable as possible in your job/profession. That way, you can reduce the threat of a recession/slowdown on your life. Easier said than done, but that’s the truth. You may never wilt a recession-proof employee but at least, you can try to wilt the last person to be fired if it comes to that. Isnt it?
It doesn’t rain every day. But if it rains and you are unprepared (say you don’t have an umbrella), then your day will be tough. So, it’s unchangingly a smart idea to be prepared for the rainy day aka possibility of recession if it comes to that. But each recession will be variegated from the previous one. And generally, a sell off (gradual or sharp) in markets happens much in whop of a recession or slowdown.

All said and done, a slowdown cannot be averted if the world is going that route. But we are lucky to be in India, which has a restrictedly solid economy and projected to grow at the fastest rate among the major world economies.

A slowdown or recession is unchangingly followed by a recovery in the economy and sharp rebound in the stock market. And that is what should be remembered at all times, in particularly on not-so-good days, rather than trying to forecast macros (like me doing it in the vendible you are reading).

As this vendible in the New York Times (link) states, it is largest to be optimistic in the long run as – Fundamentally, maintaining a bullish view assumes that history will be a useful guide, that the markets will recover and that their long-term trajectory will be upward. It assumes that pain now will lead to largest prospects lanugo the road.