Global Economic Recession Explains

This would not be your first time to hear a story about a company which is to be closed down and the next step would be to retrench people as soon as possible, due to global economic crisis! Diamond Industry is one of the affected ones. Only recently, I blogged about how Diamond industry holds crisis, please read here. Yes we are, in fact the original company we used to work here has already been started reducing people. In connection with this, I felt the significance of knowing the real situation of our economy by understanding the theory behind.

Why I started talking about "UNEMPLOYMENT". What is its connection to global recession? Unemployment is directly associated to recession. A decline in the economic activity records an immediate dip in the employment market. This is a proven fact that has been recorded in IT and financial sectors since centuries. Many companies today are firing employee due to cost deductions issues. Even the rate of hiring new employees is falling down drastically, eventually changing the complete picture and complexion of the job market.

It is believed that in August 2008 nearly about 84,000 jobs were lost accounting fro 6.1% unemployment rate. This seems to be the highest since the rate recorded in September 2003. Over the last sixty years, starting from 1948 to 2008, rate of unemployment have fluctuated from 2.5% to about 10.8%. Combining this to the period of economic recession brings out a severe downturn, leading to an unhealthy economy.

Economic recession is defined as a decline in the country’s gross domestic product growth for about two or more consecutive quarters in a particular year. As a part of a normal business life-cycle when an economy that grows over a period of time tends to slow down. An economy typically grows for 6 to 10 years and later is likely to go into a recession for about 6 months to 2 years. Thus, economic recession is a declining phase of the business life cycle when there decline in economic activities spread across the economy, lasting for more than a couple of months, normally visible in GDP, employment, real income, industrial production and wholesale or retail sales.

"the global economy is teetering on the brink of recession. The downturn after four years of relatively fast growth is due to a number of factors: the global fallout from the financial crisis in the United States, the bursting of the housing bubbles in the US and in other large economies, soaring commodity prices, increasingly restrictive monetary policies in a number of countries, and stock market volatility.

… the fallout from the collapse of the US mortgage market and the reversal of the housing boom in various important countries has turned out to be more profound and persistent than expected in 2007 and beginning of 2008. As more and more evidence is gathered and as the lag effects are showing up, we are seeing more and more countries around the world being affected by this rather profound and persistent negative effects from the reversal of housing booms in various countries".

A recession has many characteristics that can occur simultaneously and can include declines in real-time measures of overall economic activities. Recessions are the result of reduction in the demand and may also be associated with falling prices also known as deflation, or on the other hand it could also be due to increasing prices also known as inflation or a combination of increasing prices and stagnant economic growth.

A prolonged or severe recession is referred to as an economic depression. Although the difference between a recession and a depression is not clearly stated, it is often believed that a decline in Gross Domestic Product or GDP of more than 10% constitutes a depression.

US markets have a great impact on the global economic growth. Therefore when there is a cue of probable recession in the US it apparently affects the Indian market as well as the global markets leading to a global economic slowdown. Thus weakening of the US economy is bad news, not only for Africa or Philippines or England, but also for the rest of the world.