"As sure as the spring will follow the winter, prosperity and economic growth will follow recession." -----Bo Bennett
[Definition--] A period of reduced economic activity is called Recession. There are two types of recession. Cyclical recession comes around regularly, as reactions to periods when growing confidence gets out of control. A structural recession is more than a crisis of confidence. It occurs when a deep, underlying problem in an economy can no longer be denied.
[Causes --]A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.Main causes of 2009 recession were -
Ingeneral Impact of recession on Business --Today’s recession is already longer than all but two of the downturns since World War II.After the GDP data was out gold prices slumped from its new highest level of Rs 16,000 per 10 gm to below Rs 15,500 level. India imported no gold in February as against 23 tonnes during the same period last year.The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. The yen's 13 percent rise versus the dollar in the last six months is also taking a toll. The Japanese currency reached a 2 1/2-year high of 104.97 to the dollar last week.International tourism began to slow in June of last year. This year, the World Tourism Organization (WTO) expects cross-border visits to remain steady or decline 2 percent, according to its latest report in January.A slowdown in the US economy is bad news for India.Indian companies have major outsourcing deals from the US. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year.The worries for exporters will grow as rupee strengthens further against the dollar. A recession could bring down oil prices to $70.
Positive Impact of recession-- Recession may in fact be the wake-up call that forces them to take necessary measures that not only preserve them but may turn out to be the making of their fortunes.Business is Darwinian. Survival of the fittest is cruel, but ultimately it is the best way to allocate limited resources. If a business is terminally inefficient, or operating in a market of decreasing viability, it is better that the money of the investors, the labour of the employees, and the enterprise of the management be deployed elsewhere, where they can do more good.The "redeployment" process is best done quickly.The problem with recession as an agent of that "redeployment" is that is it is a blunt instrument, destroying not only the terminally inefficient but also many businesses that might be viable under other circumstances.
[Definition--] A period of reduced economic activity is called Recession. There are two types of recession. Cyclical recession comes around regularly, as reactions to periods when growing confidence gets out of control. A structural recession is more than a crisis of confidence. It occurs when a deep, underlying problem in an economy can no longer be denied.
[Causes --]A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.Main causes of 2009 recession were -
- Credit crunch - shortage of finance
- Falling house prices - related to shortage of mortgages and credit crunch
- Cost push inflation squeezing incomes and reducing disposable income
- Collapse in confidence of finance sector causing lower confidence amongst 'real economy'.
Positive Impact of recession-- Recession may in fact be the wake-up call that forces them to take necessary measures that not only preserve them but may turn out to be the making of their fortunes.Business is Darwinian. Survival of the fittest is cruel, but ultimately it is the best way to allocate limited resources. If a business is terminally inefficient, or operating in a market of decreasing viability, it is better that the money of the investors, the labour of the employees, and the enterprise of the management be deployed elsewhere, where they can do more good.The "redeployment" process is best done quickly.The problem with recession as an agent of that "redeployment" is that is it is a blunt instrument, destroying not only the terminally inefficient but also many businesses that might be viable under other circumstances.
How to combat Recession--1.Tax cuts are the first step that a government fighting recessionary trends or a full-fledged recession proposes to do.
Conclusion---
An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years.We had seen how unemployment in the US peaked at almost 25% in the period 1929-1933 when the US economy shrank by 27%and the stock market lost 90% of its value from boom to bust.Even after that US managed to record 37 quarters of economic expansion the longest period of expansion on record. The US saw a recession during 1982-83 due to a tight monetary policy to control inflation and sharp correction to overproduction of the previous decade. This was followed by Black Monday in October 1987, when a stock market collapse saw the Dow Jones Industrial Average plunge by 22.6 per cent affecting the lives of millions of Americans.The early 1990s saw a collapse of junk bonds and a financial crisis.The US saw one of its biggest recessions in 2001, ending ten years of growth, the longest expansion on record.From March to November 2001, employment dropped by almost 1.7 million. In the 1990-91 recession, the GDP fell 1.5 per cent from its peak in the second quarter of 1990. The 2001 recession saw a 0.6 per cent decline from the peak in the fourth quarter of 2000.The dot-com burst hit the US economy and many developing countries as well. The economy also suffered after the 9/11 attacks. In 2001, investors' wealth dwindled as technology stock prices crashed.So based on the above facts we can easily say that if the above mentioned measures are taken we are sure to come out of recession once again.
And in any case you can always like Fowler say--
"The other thing is quality of life; if you have a place where you can go and have a picnic with your family, it doesn't matter if it's a recession or not, you can include that in your quality of life."
