KUWAIT: Economic recession and its effects on unemployment, income levels, its duration, and ways to protect against its impacts, as well as its influence on the residential real estate market in Kuwait, are all concerns that people are focused on today given the current global conditions. Therefore, Kuwait Times conducted an interview with real estate analyst and trainer Ala’a Behbehani.
Kuwait Times: What is an economic recession?
Ala’a Behbehani: An economic recession is a decline in economic activity across various sectors and economies. This is observed through a decrease in GDP, individual income, employment, production rates, and retail sales.
KT: What is its impact?
Behbehani: A recession means a market where buying and selling activities drop to a minimum level. It often leads to a near-absence of bank loans, meaning individuals and businesses may have to rely on their personal financial resources or bear the burden of high-interest debt. This situation restricts growth and reduces sales. During such times, we can observe how experienced companies manage the crisis, while new companies often withdraw from the market.
KT: What are the indicators and effects of recession?
Behbehani: Decline in GDP (Gross Domestic Product), increase in interest rates, increase in inflation rates, decline in manufacturing sector index, decrease in retail and wholesale sales indexes, decrease in oil demand and drop in oil prices.
KT: How is it related to unemployment, income levels, and recession?
Behbehani: A recession often results in reduced consumer spending, especially on secondary products, and a decrease in dining out, visiting cafes, and entertainment venues. This leads businesses in these sectors to either exit the market or cut expenses. To manage costs, companies may lay off unskilled workers and reduce their workforce to align with the lower demand. This contributes to an increase in unemployment. Additionally, the economic downturn may force businesses to lower wages to match reduced income levels. These are some of the effects of a recession.
KT: How will a recession impact the residential real estate market in Kuwait?
Behbehani: We know that a significant portion of participants in the Kuwaiti real estate market includes government employees, the middle class, and property owners among traders. Government employees have largely withdrawn from the market due to the high inflation in property prices, making it unaffordable for them. As for the middle class, which relies on loans for purchasing property, they are now facing higher interest rates and a decline in market activity due to the recession. This has led to reduced income, leaving them caught between selling their assets or maintaining their current holdings and repaying their loans. For traders, if their goal was speculative investment in real estate, they have lost this opportunity due to the market’s stagnation and slow transactions. However, if their focus is on rental properties, a recession might actually present good opportunities, as rental demand may increase, making it a favorable time to leverage these opportunities.
KT: How long does a recession last?
Behbehani: Typically, a recession lasts between one year and a year and a half. It significantly impacts speculative businesses. Economists are concerned about the possibility of a recession evolving into a depression, which is more severe and has a greater impact on the economy. Addressing these economic situations is primarily the responsibility of central banks, as it involves government financial policies rather than individual actions.
KT: Who is affected by economic recession, and how can one protect themselves from it?
Behbehani: Everyone is affected to some degree, but I urge ordinary citizens with salaries to organize their financial matters and avoid unnecessary spending on non-essential items, which can be purchased later, like luxuries. Additionally, reduce expenses to prepare for future economic conditions and avoid using credit cards as much as possible since they can lead to crippling debt if not paid off immediately. Recession also severely impacts speculative businesses. However, investments and long-term businesses are less affected by a recession, and their owners have a chance to adapt. While a recession is economically frightening, it is short-lived and can be overcome with planning, responsibility, and some sacrifices from individuals to navigate life without economic problems.