Indonesia Expat
Business/Property Observations

The Hidden Benefits of an Economic Crisis

The Hidden Benefits of an Economic Crisis

When we hear the phrase “Economic Crisis”, we think of the dystopian world we have all seen in the movies. With the way 2020 has gone so far, the Hunger Games doesn’t seem too far off reality.

As the world faces a global pandemic, the economic impacts of COVID-19 have been revealed. People have lost their jobs, businesses have struggled to stay afloat, and stocks have lost their value. However, it’s important to remember that crises are a part of the economic cycle and, contrary to popular belief, there are some positive ways crises can impact economies.

If economies were to grow constantly, high inflation would increase price levels of day-to-day goods, making them unattainable for many. In an economic crisis, assets and resources can be reallocated. Because stocks are low, an economic crisis provides great buying opportunities, especially for those who are first-time buyers in a free market. This reduces wealth inequality. For example, those who want to buy a house are more likely to find affordable houses since the price of goods, especially big-ticket items, gets lowered and people can improve their quality of life.

Similarly, starting up a business is more affordable now that firms can invest in land, labour or capital for a lower price. When faced with an economic downturn, existing firms may fire employees to reduce costs. With an increased number of skilled individuals seeking employment, finding labour and human capital for a start-up business is more effective. Another way labour becomes more available to firms is the increase in individuals seeking further education. In a recession or depression, individuals are exposed to the negative effects economic downturns can have on personal income. This can be a motivation for people to seek further education in order to gain skills and find more secure employment.

When an economic crisis impacts businesses, declining prices signal to businesses that it’s time to reduce excess inventory and costs. This encourages investors to learn to manage their finances more effectively while maintaining consumer demand. Wasted scarce resources are better understood and it’s easier to find ways to reduce losses. More firms valuing the allocation of their resources means the economy is able to achieve better productivity, further optimising resources and increasing company profits.

According to the Harvard Business Review, as businesses face up to a declining economy, opportunities for other firms and businesses to develop themselves arise. For start-up businesses or entrepreneurs, this means that there are cheaper stocks and reduced competition, allowing them to start up their businesses more effectively. When a sector sees lower levels of economic activity, it suggests that there’s going to be less competition to clients and market share. This also means that marketing may reach wider audiences. As firms reach out to a wider group of consumers, profits increase and businesses are better off.

Though it’s clear that crises come loaded with economic impacts, it’s worth noting that there are also personal and social consequences that have positive impacts on us. During economic downturns, we are reminded to manage our money effectively. Being frivolous with our resources, time, and cash becomes more obvious and we’re forced to make tough financial decisions, similar to businesses. We’re taught not to take things for granted and focus our resources on the things that truly matter to us.

It’s unrealistic to say that every single one of these outcomes will be a consequence of the current economic downturn, and we can’t say that no one will be negatively impacted. However, in hard times like this, it’s important to be aware of what we have control over. Though each of us may not have control over the economic crisis in the world as individuals, we’re able to direct how we respond to such changes.

We are able to dictate our mindset and approach these hard times positively or let anxiety overwhelm us.

Which one will you choose?

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