effect of recession - harshad more

8/8/2019 Effect of Recession - HARSHAD MORE

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What is Recession?

• Recession is the economy shrinking for two consecutivequarters (=6 months) with decrease in the GDP.

or • “significant decline in economic activity lasting more than

a few months, which is normally visible in -• Real GDP,• Real income,• Employment,

• Industrial production,• Wholesale-retail sales”.



What is GDP?

• Gross Domestic Product - Value of all the reportedgoods and services produced by the people

operating in the country.

• GDP = MONEY VALUE OF {C + I + G + (X – M)}

• C = Consumables,

• I = Gross Investments,

• G = Government Spending,

• X = Exports,

• M = Imports

• Note - GDP is a good indicator of

economy



Why Recession happens?

• OVERPRODUCTION - PSEUDO DEMAND

• Actual need was not there

• Wrong projections companies produced more.

• A situation in which the supply exceeds the nation’sability to consume what has been produced.



Contd….

• LOW CONFIDENCE LEVEL - Word of mouth

• Low Confidence Level of Millions of consumersand producers after they hear many job cuts,

• Due to which demand coming down,

• Leads to Companies’ bankruptcy, etc



• Assignable Cause - Bad Incidences Happening

Terrorist Attack in US

Mumbai Attacked in India

Taliban occupy Swat



Causes of Recession

• Currency crises Frequent change in international

currency rate.

• Energy crisis Usually refers to the shortage of oil

and additionally to electricity or other naturalresources of energy.

• War Ruins the country property. Refers and relate

to economy.



• Under consumption Insufficient consumer demand relative to the amount produced

• Overproduction Excess of production over consumption.

• Financial crisis Some financial institutions or

assets suddenly lose a large part of their value



Effects of Recessions

• Credit crunches Banks may suddenly stop

or slow lending activity.

• Bankruptcies Bankruptcy typically involves

concealment of assets, concealment or destruction of documents, conflicts of interest, fraud claims and false

statements or declarations.

• Deflation Persistent decrease in the general

price level of goods and services.



• Foreclosures

Legal and professionalproceeding in which a lien holder, usually a lender,obtains a court order of redemption.

• Unemployment When a person is availableto work and currently seeking work, but the person iswithout work.



List of major RecessionRecession

Name

Recession

Year

Time Taken

Cause & Impact

Great

Depression

1929–1939 10 years Stock markets crashed worldwide, and a banking

collapse took place in the United States. This sparked

a global down turn including a second more minor

recession in US.

1937 Oil

Recession

1973–1975 2 years Due to the Vietnam war lead to stagflation in the US

Early 1980’s

Recession

1980–1982 2 years Iran, which exported oil at inconsistent intervals and

at a lower volume forcing prices to go up.

Early 1990’s

Recession

1990–1991 1 year Industrial production and manufacturing trade sales

decreased in early 1991.

Early 2000’s

Recession

2001–2003 2 years The collapse of the dot-com bubble, the September

11 attacks & accounting scandals contributed to a

relatively mild contraction in the N America economy



Effects of Recessions on India Economy

• Availability of Global Liquidity for India in times of Financial Crisis

• Decreased consumer demand affecting exports

• The Financial Crisis and the Indian IT Industry

• The Financial Crisis and India‘s Financial Markets



Availability of Global Liquidity for India in

times of Financial Crisis

• The main source of Indian prosperity had been ForeignDirect Investment (FDI).

• American and European companies were bringing in truck-

loads of dollars and Euros to get a piece of pie of Indianprosperity.

• Less inflow of foreign investment will lead to a dilution of theelement of GDP driven growth.

• India is in no position to ever return this money because ithas used the same in subsidizing the petroleum productsand building low quality infrastructure.



Decreased consumer demand affecting

exports• Consumer demand has plummeted drastically in

developed economies, leading to a reduced demandfor Indian goods and services, thus affecting Indian

exports.

• Export oriented units are the worst hit; thus impacting

employment

• Trade gap has been widening due to the reduced

exports, leading to pressure on the rupee exchange

rate



The Financial Crisis and Indian I.T.

Industry

• In India, IT companies, with nearly half of their revenues coming from financial and banking service

segments, are close monitors of the financial crisis

across the world.

• The IT giants which had Lehman Brothers and MerrillLynch (ML) as their clients are Tata Consultancy

Services (TCS), Wipro, Satyam, and Infosys

Technologies.

• HCL escaped the loss to a great extent because

neither Lehman Brothers nor ML was its client.



Impact on Financial Markets: • The outflow of foreign institutional investment from the

equity market has been the most immediate effect of

the crisis on India.

• Foreign Institutional Investors (FIIs) have been major sellers in Indian markets as they need to retrench

assets in order to cover losses in their home countries,

thus being forced to seek havens of safety in an

uncertain environment.

effect of recession - harshad more

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