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- Economists say there is a 61% likelihood for a recession in 2023, according to the Wall Street Journal survey.
- Some say high interest rates will push the US economy into the recession.
- Businesses and employees are preparing for the economic downturn.
Despite many signs pointing in the right direction — like inflation receding, continued consumer spending, and dropping rates of unemployment — experts warn that a recession is still likely.
In fact, business and academic economists say there is a 61% probability of recession within the next year, according to the Wall Street Journal’s latest quarterly survey. The predicted likelihood dropped 2% from October, but remains historically high.
Officials at the Federal Reserve are tasked with the responsibility of balancing raising rates too much with not doing enough to slow down spending and investment, the Journal reported.
There remains a debate as to if and when a recession will arrive
A recession is historically known as a period of time where the economy experiences at least two consecutive quarters of negative growth.
But that’s not necessarily the case this time because the GDP increased at an annual rate of 3.2% in the third quarter of 2022, according to the Bureau of Economic Analysis. That discrepancy has generated some debate as to whether we’ve been in a recession over the last six months, or will enter one in 2023.
“I do think this is a more uncertain and more hotly contested question than perhaps ever in American history,” Julia Pollak, chief economist at ZipRecruiter, previously told Insider.
Still, economists say the Fed will not be able to adequately rebalance national finances. For instance, some say higher interest rates will push the U.S. economy into a recession this year. Others say slowing global growth rates indicate the potential downturn.
“While services activity remains robust, the housing sector is tumbling under the weight of elevated mortgage rates and manufacturing activity is stalling — both signaling a broader economic downturn is likely coming,” Greg Daco, chief economist at EY-Parthenon, told the Journal.
Regardless, businesses and workers alike are preparing
Since the middle of 2022, businesses and workers have continued preparing for the economic downturn to come.
Large tech firms like Meta and Amazon have conducted mass layoffs to cut costs and brace for a difficult financial situation this upcoming year.
Entrepreneurs have begun conducting financial audits and leaning out their marketing spend, to check in on “small amounts of money leaking out” of their businesses and to ensure they’re conducting matter in the most efficient way,” founders like Ryan Niddel, a serial entrepreneur, told Insider.
Despite today’s economic fears, now is actually a beneficial time to start these small businesses, financial experts told Insider.
“Previously, entrepreneurship fell during recessions because people became a lot more risk-averse,” said Luke Pardue, an economist at the HR platform Gusto. “But what we’re seeing now is they’ve realized that employment itself is risky, and it’s become easier to start that business.”
That’s why employees have taken up additional work in the form of side-hustles and passive income opportunities. Whether that be freelance opportunities like blog writing and content creation, or launching side businesses like virtual assistant firms or ecommerce shops, they are doing so to prepare for potential layoffs and earn ancillary income, small business owners told Insider.