2/23/2024

3 industries which grow during a recession

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Portfolio diversification remains the key to minimizing risk in any economic situation. However, during times of recession, the risks are much greater, as even highly profitable industries may show declines.

The variety of reasons for the growth of shares during a recession does not allow them to be interpreted unambiguously. However, analysis of successful cases during such periods can reveal general patterns that make them more attractive for investment.

Here are the top three industries that tend to grow during economic downturns.

Pharmaceutical industry and healthcare

Even in the midst of a general economic downturn, the healthcare sector has typically exhibited a notable degree of resilience. The enduring demand for medical services, stemming from their critical nature, often leads individuals to prioritize healthcare spending, even in times of reduced income.

Nonetheless, it’s crucial to recognize that not all companies within the healthcare sector possess the same level of recession resistance. Enterprises burdened with substantial debt and constrained cash flow may find themselves particularly susceptible. During an economic downturn, such companies often encounter challenges in managing losses and fulfilling debt-related commitments.

Communication services

The technology and communication sector encompasses a diverse array of companies, spanning telecommunications service providers, social media giants, search engine platforms, streaming services, and video game developers. Key players in this field include Meta Platform, Alphabet, and Netflix.

Netflix notably underwent a substantial growth phase in the early months of 2020. The global shift towards home confinement prompted a surge in demand for streaming entertainment, leading to a significant uptick in subscriptions and stock values. Despite the conventional expectation that discretionary services like streaming might see reduced usage during challenging economic periods, Netflix defied this trend at the onset of the pandemic.

In broad terms, telecommunications firms are anticipated to exhibit greater resilience to market fluctuations, while internet-based companies reliant on advertising revenue may encounter challenges due to potential reductions in marketing budgets.

Consumer goods

The durability of the consumer goods sector stems from the essential nature of its products. Even in economic downturns and times of high unemployment, fundamental necessities like food, hygiene items, and household goods remain consistently sought after. Consequently, people are less prone to reduce their expenditures within this sector, even amid financial hardships. This inherent demand for essential goods positions consumer products companies as relatively secure investment choices during periods of economic uncertainty.

Every recession is unique

In times of economic downturns, sectors that cater to essential needs, unavoidable by the population, typically exhibit resilience. It’s crucial to recognize the uniqueness of each recession, as various factors contribute to their emergence, and the characteristics of one downturn can differ significantly from another. Consequently, an industry thriving in one period may encounter challenges in another, highlighting the dynamic nature of economic cycles.

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