Considering ADA has a max circulating supply, and productivity of goods and services always tends to grow, does that mean ADA will always be deflationary in the long run? Couldn't that lead to recurring recession environments which discourage people to spend/borrow?
Yes Sir. ADA has a fixed supply and just like Bitcoin it is always going to be deflationary. It's the mindset. What is "deflationary"? That's only when you convert it to FIAT correct? The whole purpose of Crypto is not ultimately converting it into FIAT. If you remove FIAT from the picture, people will use it as SOV and also for transactions as value exchange. Then the whole concept of "deflationary" will slowly die and we will only be talking about "finite supply".
In Cardano, ADA is a synthetic resource that is used for many purposes. Charles explained it in detail in this video https://youtu.be/lMZ1xQzWtl4
So the finite supply is a desirable feature. The deflationary effect is a consequence.
The differences between Store of Value (SOV) and a unit of exchange is natural because they don't serve the same purpose. People expect SOV to hold its value over time and protect them from any inflation, including the inflation that results from growth in productivity.
Your concern is genuine that there is an incentive to hold (HODL) any store of value, not just ADA. Stable coins and fiat currencies are designed to be units of exchange and lose value with inflation. So there is an incentive to spend them before they lose value. So there is a place for both; we need SOV for long-term savings and units of exchange for short-term disposable cash.
In our financial systems we have both; however, the conversion between the two has a lot of friction caused by layers of middlemen and by the burden of record-keeping required by laws designed to prevent money laundering and terrorist financing.