A typical recession wipes out about 2% of GDP, which for an economy the size of Great Britain, means there will be £50 billion less to go around. That’s clearly not good but considering that the government has wasted an estimated £100 billion since 2019, on so called “scandalous spending” (like Carrie’s wallpaper), it is hardly going to move the needle. So, why are we so afraid of recessions?
For one, capital flows into public services slow with wide ranging effects, none of which are positive, and that can have repercussions for society for a very long time. Two, discretionary spending falls, people in the leisure, hospitality, construction, and retail sectors lose their jobs, businesses fail, and everyone feels just a bit more miserable than they did before.
Where it gets interesting, is when it comes to the stock market, and one investor’s distressed asset sale is another’s opportunity of a lifetime. On average, US markets drop 32% during recessions, but almost always start going lower before the recession starts and bottom before the recession ends. In other words, you either sell ahead of when things go bad or wait to buy until things are seemingly at their worst.
There are plenty of economists that are predicting a recession to start in 2024. We also need that narrative for the central banks to stop hiking rates and remember, they made it very clear that something needs to break. Stock markets however are up strongly this year. Either that means that the Fed has managed to engineer only the third soft landing in a hundred years, or you sell and go away, way before May.