recession

By-Diksha Saxena

By – Diksha Saxena

What is RECESSION??In economics, the term recession describes the reduction of a country’s gross domestic product(GDP) for at least two quarters.

National Bureau of Economic Research(NBER) is the official agency in charge of declaring that the economy is in a state of recession.

The usual dictionary definition is “ a period of reduced economic activity”.

They define recession as:“significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production and wholesale retail sales”

Causes of RECESSION

Currency crisisEnergy crisisUnder consumptionOver productionFiscal policy

SWOT Analysis

StrengthsRecruiting skilled employeeLow cost work forceMistakes or the wrong decision can be

analyzedEnough time to maintain work life balance

WeaknessHousehold income decreasesBusiness profit decreasesBuying capacity decreasesDemotivation in people arisesLiving standard of people decrease which tends to -Unhealthy living environment -Unhygienic and low grade edibles demand

increases

OpportunityIt can be divided into two categories : 1- Opportunities to publicGoods and services are available at lower

costSlash in the price of real estate Investment become easy

2- Opportunities to organization

Bureaucracy and politician becomes more co-operative

The efficient workers are able to survive in the organization, these in turn leads to increment quality goods and services

The remunerations , other expanses are decreased which in turn increases the saving

Policies become flexible

ThreatsHigh unemployment & job cutting rateBankruptcies & black money circulation

increasesInflation increases & GDP decreasesCrime graph increases & research rate decreasesProductivity decrease & dumping of product

increases

The Great Recession – 2008

The global contraction from December 2007 to June 2009 that resulted in the world economy shrinking for the first time since 1945.

The great recession was an ongoing market global economic decline that began in Dec.2007 and took a particularly sharp downward turn in Sept.2008.

Causes of The Great RecessionHousing marketRisk taking behaviorExcessive private debt levelsOil PricesGovernment policiesOver Production

Some major events of the Great Recession October 9, 2007 - The Dow Jones

Industrial average reaches an all-time high of 14,164.53 points. 

December 1, 2007 - The recession officially begins. The unemployment rate stands at 5%. 

February 13, 2008 - President George W. Bush signs the Economic Stimulus Act of 2008, which gives individuals a tax rebate and encourages business investment. 

March 16, 2008 - Brokerage firm Bear Stearns collapses and is bought out by JPMorgan Chase.

September 15, 2008 - Lehman Brothers files the largest bankruptcy case in U.S. history.

October 6 - 10, 2008 - The US government unveils a massive rescue package for Citigroup. 

December 9, 2008 - The government bails out General Motors and Chrysler, offering an initial $13.4 billion from the TARP fund.

January 16, 2009 - The government unveils a huge package for Bank of America, which includes $20 billion in bailout money and $100 billion in guarantees. 

February 17, 2009 - President Obama signs into law a $787 billion stimulus package that includes tax cuts and money for infrastructure, schools, health care, and green energy.

March 9, 2009 - The dow hits the low point of the recession, closing at 6,547 - down nearly 54% from its October 2007 high. 

June, 2009 - The recession officially ends after 18 months, making it the longest downturn in post war history. 

October 2, 2009 - The unemployment rate peaks at 10%, hitting double digits for the first time in 26 years.

Impacts of The Great Recession

Credit crunchesReduction in savingsUnemploymentSales are not picking upSuddenly cash has evaporated from the marketProfitability is seriously hit

Effect of The Great Recession on India1.Investments in India in different types of policies of LIC and other insurance companies.

Source:- IRDA

2. Savings Rate in India

Source: Commerce Department, Bureau of Economic Analysis

3.Consumer Confidence Index

Source: Hindustan times

4.India’s unemployment rate

Source : Department of Labor

It is unhealthy for any nation to be in Recession. So, government will take certain countermeasures

to eliminate or reduce the effect of recession

Government has 2 plans

How to come out of recession?

Fiscal Policies(By Govt.)

Monetary Policies(By RBI)

Government influences the economy by changing howit (Government) spends and collects money

RBI manipulates the available supply of money in the country

1] Tax cuts for businesses or for individuals

More moneyavailable forspending

Demand picksup; Market can recover;

2] Automatic fiscal policy; Unemployment Insurance

Some income tounemployed people to spend

Fiscal Policies

1] Reduce reserve ratio

More moneyavailable for bankto give loans

Demand picksup; Market can recover;

3] Use its own reserved money to buy Govt. bonds

It becomes anincome to Govt.to inject moneyinto the market

MonetaryPolicies

2] Lower the interest rates

Individuals takemore loan

SuggestionsPromoting people to purchase and invest in the

marketMore Spending by Government to create new

jobs Limiting productionAttractive policies for the people having cash

reserveCut down in labor sizeCutting down loan interests and promoting themOrganizing investors summit Bringing old closed public mills to the functioning

ConclusionThere is a panic among investors & they are

rushing to get out of risky assets like stocks.As the outcome of all these development the

demand for gold has increased.As gold is seen as a safe haven, its price has

risen to record high.The industries are sensitive to high interest

rate.The RBI & our Government is prepared for

any repercussion in the financial market

RBI’s Power or Government’s Power is double-edged sword; Sometimes, their policies to recover from recession can be counter-productive and it may further worse in the situation.

Nation’s recession is controlled by the actions of everybody living in that country.