Upload
anshimamaltare
View
225
Download
0
Embed Size (px)
Citation preview
8/8/2019 Recession and Its Impact
1/20
8/8/2019 Recession and Its Impact
2/20
RECESSION DEFINITION
According to investopeda.com a recession refers to Recessionis a normal (albeit unpleasant) part of the business cycle;however, one-time crisis events can often trigger the onset of arecession. A recession generally lasts from six to 18 months,and interest rates usually fall in during these months tostimulate the economy by offering cheap rates at which to
borrow money.
8/8/2019 Recession and Its Impact
3/20
N ational Bureau of Economic Research ( N BER) defines arecession as the time when business activity has reached its
peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it iscalled an expansionary period. By this definition, the averagerecession lasts about a year.
8/8/2019 Recession and Its Impact
4/20
OVERALL IMPACT OF RECESSION
y Rising Government Borrowing.y Lower Inflation.y
Falling investment.y Rising unemployment.y The collapse in house prices
8/8/2019 Recession and Its Impact
5/20
THE IMPACT OF RECESSION ON
BUSINESSESy A recession will make it difficult for new firms who have just
entered the market.y
Increased Monopoly Power.y Hysteresis.y Fall in Productive Capacity.
8/8/2019 Recession and Its Impact
6/20
FINANCIAL CRISIS 2007
y T he financial crisis of 2007 to the present was triggered by aliquidity shortfall in the United States banking system. It hasresulted in the collapse of large financial institutions, the
bailout of banks by national governments, and downturns instock markets around the world. In many areas, the housingmarket has also suffered, resulting innumerous evictions , foreclosures and prolonged vacancies. It isconsidered by many economists to be the worst financialcrisis since the Great Depression of the 1930s.
y T he collapse of the housing bubble , which peaked in the U.S.in 2006, caused the values of securities tied to real estate
pricing to plummet thereafter, damaging financial institutionsglobally.
8/8/2019 Recession and Its Impact
7/20
REASONS FOR HOUSING BUBBLE
y Easy credit conditionsy Sub-prime lendingy Predatory lending
8/8/2019 Recession and Its Impact
8/20
HOW TO SURVIVE IN SUCH A
RECESSION T hese are some of the effects of recessions and how to deal
with them.y More difficult T o Borrow.y Unemployment.y Falling profitability of Business.y Falling Stock Market.y Consumer Confidence.
8/8/2019 Recession and Its Impact
9/20
GOOD INVESTMENT FOR A
RECESSION y Housing Markety Share Pricesy
Mineral Pricesy Government Bonds
8/8/2019 Recession and Its Impact
10/20
Any other benefit Benefits of a
recession?y L ower interest rates. Good for borrowersy L ower inflation rates. Good for saversy
Sometimes difficult times can force us to reevaluate our financial situation. It can make us look for new businessavenues and new ways to cut costs and spending. Although itmay be temporarily unpleasant, the important thing is not to
panic but try to make the best of any situation we findourselves in.
8/8/2019 Recession and Its Impact
11/20
SOME GREAT COMPANIES WENT
BANKRUPT OR WERE ACQUIRED
8/8/2019 Recession and Its Impact
12/20
EFFECTS OF PRESENT RECESSION
ON USAy T he worlds largest economy shrank 4.1 percent from the fourth quarter of
2007 to the second quarter of 2009, compared with the 3.7 percent drop previously on the books.
y Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942.
y the jobless rate doubled, reaching a 26-year high of 10.1 percent in October,y L ehman Collapsey Median household income the level where half make more and half
make less fell 2.9% from $51,726 in 2008 to $50,221 last year y T otal home equity :- $13 trillion at its peak in 2006, had dropped to $8.8
trillion by mid-2008 and was still falling in late 2008.
8/8/2019 Recession and Its Impact
13/20
PO LI IES D OP TED BY U.S.
G OV E E T T O FIGHT E ESSI ONy I.M.F. RECOMMENDATION
y UNITED STATES POLICY RESPONSES
y
FEDERAL RESERVE LOWERS INTEREST RATES y AMERICAN RECOVERY AND REINVESTMENT ACT OF
2009
8/8/2019 Recession and Its Impact
14/20
F ederal reserve rates changes (Just data after January 1, 2008 )
Date Discount rate Discount rate Discount rate F ed funds F ed funds rate
Primary Secondary
rate change new interest rate new interest rate rate change new interest rate
October 8, 2008* -0.50% 1.75% 2.25% -0.50% 1.50%
April 30, 2008 -0.25% 2.25% 2.75% -0.25% 2.00%
March 18, 2008 -0.75% 2.50% 3.00% -0.75% 2.25%
March 16, 2008 -0.25% 3.25% 3.75%
January 30, 2008 -0.50% 3.50% 4.00% -0.50% 3.00%
January 22, 2008 -0.75% 4.00% 4.50% -0.75% 3.50%
8/8/2019 Recession and Its Impact
15/20
EFFECTS OF RECENT RECESSION ON
E ROPEAN NIONy industrial production fell 1.9 percent in May 2008y European car sales fell 7.8 percent in May compared with a year earlier.y Retail sales fell by 0.6 percent in June from the May level and by 3.1 percent from June in
the previous year.y Ireland in the first quarter of 2008 reported a contraction in GDP of 1.5 percent.y In February 2009, the government announced record unemployment levels in the
country, 1,500 people being laid off daily.y unemployment in Spain has risen by 425,000 over the past year, reaching 9.9 percent.y Spain's factory output slumped 5.5 percent in May 2008y Germany's industrial output was down 2.4 percent.y Industrial output in both Italy and Greece has slumped 6.6 percent.y Other members saw a decline in their economies in the second quartery France by 0.3 percenty Finland by 0.2 percenty Denmark showed a contraction of 0.6 percenty
The entire economy of the European Union declined by 0.1 percent in the second quarter.
8/8/2019 Recession and Its Impact
16/20
E ESSI
y European stimulus plan amounting to 200 billioneuros
y
Germany and Spain have announced fiscal stimulus of respectively 3.3% (two plans altogether) and 3.7% of their GDP.
y The UK was the only country that opted for a
temporary decline in the standard VAT rate , by 2.5percentage points.
8/8/2019 Recession and Its Impact
17/20
EFFECT OF RECESSION ON CHINA
y a large number of export-led private enterprises in Chinascoastal provinces have gone bankrupt, with around 20 millionunskilled workers losing their jobs.
y the decline in real estate investments, has led to a decrease inGDP growth from 13% in 2007 to 9% in 2008.
8/8/2019 Recession and Its Impact
18/20
THE CHINESE GOVERNMENT S
REACTION TO THE GLOBAL CRISISy In terms of fiscal policy, US$588 billioninvestment plan was
released in N ovember 2008.y
loan interest rates have been cut from 4.14% and 7.47% to2.25% and 5.31% respectively.y T he required reserve ratio has declined from 17.5% to 13.5%.y Over 80% of the RMB4 trillion investment package was
allocated to infrastructure and property investments
8/8/2019 Recession and Its Impact
19/20
EFFECT OF S RECESSION ON IN IA
y the I T Enabled Services sector was the hity T he tourism sector was affected.y
T he manufacturing sector ramped up scale economies.y J OBS IN RECESSION AND INDIAN YOUTH
8/8/2019 Recession and Its Impact
20/20
H OW H AVE WE RESPON E TO
T H E C H ALLEN E? y G OVERNMENT'S FISCAL STIMULUS :- included additional
public spending, particularly capital expenditure, governmentguaranteed funds for infrastructure spending, cuts in indirect
taxes, expanded guarantee cover for credit to micro and smallenterprises, and additional support to exporters.y These stimulus packages came on top of an already announced expanded
safety-net for rural poor, a farm loan waiver package and salary increasesfor government staff, all of which too should stimulate demand.
y to keep the domestic money and credit markets functioningnormally and see that the liquidity stress did not trigger solvency cascades. In particular, we targeted three objectives.
1) to maintain a comfortable rupee liquidity position2) to augment foreign exchange liquidity 3) to maintain a policy framework that would keep credit delivery
on track so as to arrest the moderation in growth