3 ways to keep calm amid looming recession

GDP slow growth ahead- should you be worried?

The Singapore government has cut its 2012 growth forecast to “about 1.5%” from 1.5-2.5%. It projects 1-3% growth for 2013, citing an uncertain global outlook.

Being small and open, Singapore is often being called a “high beta” economy—which means we are highly sensitive to the ebb and flow in global economic tides.

In the event that slow growth turns into negative growth, in other words-- a recession, should you be worried? Let’s see below.

1. Job insecurity may come knocking (again)

Is your industry highly sensitive to how the economy performs? During the last recession, financial institutions experienced a bloodbath and had to lay off employees. Electronic manufacturing as well as travel would fall into the sensitive categories.

The impact of this sensitivity would mean reduced demand and pricing power for the products and services that your company provides.  If it also happens to be highly leveraged through bank borrowings, it would be extra vulnerable. As we know, companies often respond to a cash flow crisis by de-layering staff.

2. Personal cash flow demands more prudence

Common financial planning principles suggest that you maintain a minimum cash balance that can cover at least six months of your expenses. This would serve to tide you over the period that you may need to look for another job, should it become necessary.

It would be useful to be more prudent in your current expenditure especially when it comes to big-ticket items.

Banks offer you credit card instalments that do not make you feel the pinch when you spend now. How, the instalment payments might come in at an inconvenient time during an economic downturn when you are most vulnerable. Many small instalments pile up over time.

3. Re-allocate your assets to catch the tide

As an asset class, bonds tend to do better relative to shares during economic downturns as they are seen as a safe haven for preservation of capital while equity prices fall. People who practice asset allocation would rebalance their portfolio by buying equities on the cheap.

According to Warren Buffett, it would be an ideal time to buy equities when they go on sale. If you have been complaining about all those cash balance sitting around in your bank account earning next to nothing, it would be a good time to put them to good use.

Being aware of the above will keep you in good stead to face the 2013 economic outlook.

To your prosperity!