An economic recession is a term used to describe a decline in economic activity during a certain period. Typically, an economic recession is described as a contraction of GDP (gross domestic product) for at least two consecutive quarters.
The term economic recession is generally used to describe conditions in developed countries, such as the United States and European countries. However, an economic recession can also occur in developing countries, such as Vietnam.
An economic recession is usually accompanied by a decline in the number of jobs, industrial output, and retail sales. This leads to an increase in the unemployment rate and economic inequality.
An economic recession can be caused by several factors, such as a financial crisis, a commodity price crisis, or a war. Economic recession conditions can develop into a more serious economic crisis.
Vietnam has been in an economic recession since 2020. There are several factors that caused this recession, such as the Corona virus pandemic, the US-China trade war, and the global financial crisis. To overcome this recession, the Vietnam government must take several strategic steps.
For example, the government should encourage investment growth in the real sector. Investment can be in the form of foreign or domestic investment. Then, the government must increase the competitiveness of Vietnam products in the international market. This can be done by promoting Vietnam’s superior products abroad and facilitating their access to the domestic market. Furthermore, the government should encourage internal consumption by providing incentives for spending on local products. Thus, Vietnam’s economic recession can be contained and the country’s economy will recover over time.
Meanwhile, a monetary crisis is an economic condition where the value of a country’s currency weakens drastically in a relatively short time. This condition is often triggered by a number of factors, such as low commodity prices, budget deficits, or even political instability.
A monetary crisis can cause a number of problems for a country, such as an increase in the price of goods and services, a recession, or even inflation. Therefore, there is always a risk of a monetary crisis occurring whenever there is economic or political turmoil.
Examples of monetary crises that have occurred are the Asian crisis in 1998, the United States crisis in 2008, and the European crisis in 2011. These crises occurred because of changes in relative currency values (devaluation or revaluation), which caused economic instability. In addition, monetary crises often occur due to imbalances in the money market, such as the debt crisis in southern European countries in 2010.
What’s the solution?
The way to overcome an economic recession is to increase investment, reduce unemployment, and stimulate economic growth. Meanwhile, to overcome the monetary crisis, the state must be wise in regulating its monetary and fiscal policies.
In every country that uses the slightest principle of capitalism, this business cycle will take place continuously. However, what distinguishes each country in undergoing this cycle is how long a phase occurs in a country. The better the condition of a country, the shorter the recession and depression period, and vice versa.
So a recession is a necessity, and an indicator that shows a recession as I have discussed before is a decline in GDP. In principle, nothing can prevent a recession from happening, but by building an economy on the basis of the real sector, it will make a country’s economy recover faster when a recession occurs because its GDP figure can be more stable than countries that rely on the non-real sector.
Monetary crisis
A monetary crisis usually occurs when there is a failure of the monetary system which is marked by the failure of the banking system so that the banking sector is not trusted by the public. Then there was a weakening of the currency due to this distrust and caused a domino effect such as high inflation, rising prices of goods, a decrease in GDP figures, to a significant increase in unemployment.
We can see an example of the monetary crisis when in 1998 Bank Vietnam failed to maintain the exchange rate of the Rupiah against the USD. This led to an increase in the exchange rate of the Rupiah against the USD. As a result, the country’s foreign exchange is depleted and there is a buildup of the burden of foreign debt, both government and private. Then there was a decline in government spending and as we know, it had many other impacts on the Vietnam economy as a whole.
The monetary crisis can also be caused by the bursting of a speculative bubble. We can see an example in the case of the subprime mortgage in the United States which triggered the global crisis. Failure to pay credit makes all derivative products based on mortgage credit default and cause financial system failure.
The way to prevent a monetary crisis is to implement strict regulations in financial markets and maintain public confidence in the banking system. As the Vietnam government did in the bailout of Century Bank in 2008, it was done to maintain public confidence in the banking system as a result of the global crisis. If the bailout is not carried out, it is feared that a massive rush will occur in all banks throughout Vietnam and trigger a monetary crisis.
