Nothing is forever

“There is always some chance of recession in any year. But the evidence suggests that expansions don’t die of old age.”—Janet Yellen

MUCH has been said about the turbulence in the global economy and in our country. The pandemic, the Ukraine war, the unstable price of oil, etc. are viewed as contributors to the unfavorable economic situation. Of late, there is even a debate if recession is already in our midst.

In the United States, the National Bureau of Economic Research (NBER) is considered the official arbiter of when a recession begins and ends. It defines recession to “involve a significant decline in economic activity that is spread across the economy and lasts more than a few months.” The NBER relies on three criteria: depth, duration and diffusion or how deep, how long and how widespread is economic weakness.

As a non-economist, I view the present situation as part of a business cycle where there are ups and downs. Recession or contraction or downturn is inevitable as there cannot be continuing growth. The when, how and to what extent the recession or any downturn may be “unknowable.” History will only tell where looking back, it may be a 20:20 vision. Comparisons to similar past occurrences are natural consequences.

It is noteworthy to cite that in the unusual behavior of the economy, regulators have an important role to play. Of important considerations are inflation rate, employment, business growth and/or contraction and reaction of financial markets. The regulators have their tools “to manage” the situation so the downturn may take a “soft landing.”

The debate over whether or not we are in a recession will surely persist, and inevitably a recession will materialize. Expansions last far longer than recessions and/or contractions. Investors have generally been rewarded for their time in the market as against timing the market.

From experience in past economic weaknesses, one should learn that prudence, patience and discipline are musts in riding the waves of economic downturns.

After all, nothing is forever!

Conchita L. Manabat is the President of the Development Center for Finance. A past President of FINEX and past Chair of the International Association of Financial Executives Institutes, she serves as the Chair of the IAFEI Advisory Council. She is a member of the Consultative Advisory Groups of the International Auditing & Assurance Standards Board and the International Ethics Standards Board for Accountants. The opinion expressed herein does not necessarily reflect the views of these institutions and BusinessMirror. Know more about #FINEXPhils through www.finex.org.ph.