Trough

Trough — is a phase of the business cycle characterized by the lowest level of business activity and prices. After this stage, the economy is rising. The trough is related to such things as the high level of unemployment, business failures, and payment defaults.   

What is Trough

The business cycle is the fluctuations of the economic activity that consists of recurring economic downturns and upswings. They are related to the gross domestic product and level of employment. These cycles are periodic but not regular. The duration and amplitude of fluctuation may vary. 

Stages of the business cycle:

1. Expansion. At this stage, the economy and investments grow. The demand, production volumes, and the level of employment increase. Implemented innovations pay off quickly enough. However, the level of inflation also grows. 
2. Peak. This is the highest level of economic rise. The maximum amount of resources (labor and capital) is involved in production. The payback period for innovations being introduced is longer than during the upswing. Inflation often increases. 
3. Recession. This is a period of decreasing economic activity. The level of output, investment, and employment reduce. This stage is characterized by a decrease in the inflation rate and even by deflation. If the recession is deep and durable, it is called depression. 
4. Trough. This is the lowest point of the economic fall. The economy is characterized by very low production volumes and high unemployment. Many small businesses go bankrupt or are taken over by stronger companies.

The durability and destructiveness of the trough depend on the development level of the state. For the states where economics is related to the extraction of mineral resources, the trough is caused by the reduced cost of oil, natural gas, and other exported resources. To compensate for losses, tax rates are usually raised, and spending on social needs is reduced. However, such actions often lead to a larger decline in production.

In developed countries, trough occurs due to changes in the technological mode and technological progress. For example, the processes of searching, collecting, and processing information appear and begin to develop. These causes of trough can’t be influenced because they are the result of objective economic laws. However, a trough within one country may lead to a decline in economic performance in other regions.

Plus, the phase of the trough may be related to the difficulties in the banking sector. For example, financial institutions sometimes provide too many credits which simply can’t be paid out. In this case, financial institutions have to raise rates. 

The economy may enter the phase of trough due to extraordinary circumstances, such as the outbreak of hostilities or a significant change in prices for energy resources. A way out of this situation is possible with the direct participation of the state, which will invest money, and support certain industries and the exchange rate of the national currency.

Consequences of Trough

The trough phase usually harms the economy. Unemployment is rising due to the manufacturing recession. Against this background, there is a wave of multiple layoffs. The population, due to low incomes, begins to consume fewer products.

The debt of individuals and legal entities to banking institutions significantly increases. Loans are issued under more stringent conditions. The debt of individuals and legal entities to banking institutions is increasing significantly. Loans are issued under more stringent conditions. In the industrial and scientific spheres, the volume of investment flows decreases. Therefore, innovative development completely slows down.

After this, money depreciates, and inflation occurs. The quality of life decreases as the population becomes poorer. The state is trying to find funds, but at the same time, external debt significantly increases.

How To Survive the Trough Phase

The trough is just a period of the business cycle, but it can be devastating for the economy. To decrease this destructive effect, the government should take several measures.

Measure to survive the trough phase for the state:

• Organize the daily monitoring of the main parameters of the economic state of the regional markets.
• Stop the emission of the national currency.
• Freeze the price on the main consumer packaged goods. 
• Minimize the tax levies of import substitution industries. 
• Elaborate on new principles of work for the raw exchange and commodity markets. 
• Start to create workplaces in new infrastructure.
• Revise the basic rules for the functioning of state structures.

These measures suit the state, but there are also measures for the individuals. They revolve around personal financial management.  

Measure to survive the trough phase for the individual:

• Get rid of the outstanding loans. If you have outstanding loans, put all your energy into paying them quickly. If possible, refinance the loan at a better interest rate.
• Decrease the expenses. Start to record the expenditures. Refuse senseless and unnecessary spending.
• Create a rainy-day fund. It will help you to survive a difficult time and relieve anxiety about the future.
• Create several sources of income. It can be a new job, a monetized hobby, or an investment.