HR Practices During Recession & Post Recession Planning (2003 Format)
Recession Final
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Transcript of Recession Final
8/3/2019 Recession Final
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Sterling College of Arts, Commerce and
Science
Topic:
Global Recession and its Contagious
Effects
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Acknowledgement
Through this acknowledgment, we express our sincere gratitude to all
those people who have been associated with this assignment and have
helped us with it and made it a worthwhile experience.
Firstly we extend our thanks to the various people who have shared their
opinions and experiences through which we received the required
information crucial for our project.
Finally, we express our thanks to our Managerial Economics Professor Mr.
Swapnil Redekar who gave us this opportunity to learn the subject in a
practical approach and he guided us and gave us valuable suggestions
regarding the project.
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INDEX
Topic
1. What is Recession?
2. Definition
3. Main Cause of Recession
4. Definition
5. Global Recession
6. The US Sub-prime Crisis
7. Main Cause of Recession
8. Effect of Recession
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What is Recession?
In economics, a recession is a business cycle contraction, a generalslowdown in economic activity. During recessions, many macroeconomicindicators vary in a similar way. Production, as measured by grossdomestic product (GDP), employment, investment spending, capacityutilization, household incomes, business profits, and inflation all fall, whilebankruptcies and the unemployment rate rise.
Recessions generally occur when there is a widespread drop in spending,often following an adverse supply shock or the bursting of an economic
bubble. Governments usually respond to recessions by adoptingexpansionary macroeconomic policies, such as increasing money supply,increasing government spending and decreasing taxation.
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Definition
According to the National Bureau of Economic Research (NBER),
recession is defined as "a significant decline in economic activity spread
across the economy, lasting more than a few months, normally visible in
real gross domestic product (GDP), real income, employment, industrial
production and wholesale-retail sales". More specifically, recession is
defined as when businesses cease to expand, the GDP diminishes for two
consecutive quarters, the rate of unemployment rises and housing prices
decline.
Economists officially define a recession as two consecutive quarters of negative growth in gross domestic product (GDP). The National Bureau of
Economic Research cites "a significant decline in economic activity spread
across the economy, lasting more than a few months" as the hallmark of a
recession.
Both definitions are accurate because they indicate the same economic
results: a loss of jobs, a decline in real income, a slowdown in industrial
production and manufacturing and a slump in consumer spending -
spending that drives more than two-thirds of the U.S. economy.
Many factors contribute to an economy's fall into a recession, but the major
cause is inflation. Inflation refers to a general rise in the prices of goods
and services over a period of time. The higher the rate of inflation, the
smaller the percentage of goods and services that can be purchased with
the same amount of money. Inflation can happen for reasons as varied as
increased production costs, higher energy costs and national debt
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Main Cause of Recession
It all started from USA housing crisis (sub-prime crisis). The USA financial
institutions went on lending to people for house construction without
bothering to verify their repaying capacity. The houses were pledged with
the financial institutions. When the prices of house properties crashed and
the loners failed to repay the loan, the financial institutions repossessed the
properties but could not sell as prices had crashed. This resulted in huge
loss which crippled the USA financial sector. Many financial institutions
went bankrupt. On the whole the entire USA economy was in turmoil and it
went in to recession. As the globalization has made the world trade
interlinked n as the USA is the richest economy in the world; the countries
which were dependant on USA economy also suffered. Gradually this slow
down spread to all parts of the global economy. This in nutshell is the main
cause of global economic slowdown.
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Global Recession
A global recession is a period of economic slowdown. The International
Monetary Fund (IMF) takes many factors into account when defining aglobal recession, but it states that global economic growth of 3 percent or
less is "equivalent to a global recession". Defining a global recession is
more difficult, because developing nations are expected to have a higher
GDP growth than developed nations. According to IMF, the real GDP
growth of the emerging and developing countries is on an uptrend and that
of advanced economies is on a downtrend
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The global economic depression has impacted on development towardsthe reduction of child mortality. The decrease in government and familyrevenue has involved kids’ access to health care facilities. In turn, it hasmade kids more susceptible to morbidity and mortality. The World Bankforecasted in February 2009 that approximately 200,000 to 400,000 morechildren may die from 2009 until 2015 among developing countriesbecause of the effects of global financial crisis.
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The global recession has slowed development and progress towardsachieving the Millennium Development Goals (MDGs). The InternationalMonetary Fund estimates that the global economy contracted by 0.6 per cent in 20091and the implications of this have been severe for many.Economic growth in developing countries was only 1.7 per cent in 2009compared with 8.1 per cent in 2007. However, if China and India areexcluded, the economies of developing countries actually contracted by 1.8per cent3. The World Bank has estimated that an additional 64 millionpeople will be living in extreme poverty on less than US$1.25 a day by theend of 2011 as a result of the global recession.
The capacity of developing countries to respond to the crisis varied
considerably. Countries with a heavy reliance on export revenue and
foreign investment were most exposed to the impacts of the downturn.
Those with stronger economies resources were able to implement effective
policy responses to support the economy and weathered the global
recession relatively well.
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Effects of Recession
Recessions have the tendency to touch sore spots of business. Those
which are no longer viable are shut off. For instance publications that are
now low on subscription, advertising and sales get the first cut. Mostcompanies spend large sums on advertising in print and electronic media.
The PR companies have to work on tighter budgets with maximum
mileage. Chances are that different agencies that were used for different
products are now merged. A single agency is given the job to do. Staff in
the office faces retention as now the work load is divided between only the
most necessary employees. The ones left can also forget about the raise in
salaries and also work hard.
As USA faces a visible recession in current times, it is evident that
economists are in overdrive to review the fiscal statistics and give expert
opinions. The stock markets have already created a panic situation in the
country. The biggest lenders are now facing a cash crunch and for the first
time they are also admitting it.
Most of the credit has gone into housing, car, security and insurance
schemes. Americans who have invested in such schemes have only their
stocks to offer as collaterals and now are facing the brunt with
embarrassing foreclosures. Does this recessive situation warrant a soul
search amongst the other nations who are depending and banking their
economies on Uncle Sam’s federal reserve’s? The answer is yes. There
has been no sustainable development in major sectors like housing,
medical, small scale business. The US economy has reached its peak and
is slowly going downhill.
Jobs are being outsourced to other countries while Americans arethemselves jobless. As Asian countries are getting more employment, even
expatriates are returning home. India and China are major outsourcing
backyards for the US.
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The US Sub-prime Crisis
The US Subprime Crisis has not only resulted in US economy recessionbut its ripple effects have touched the countries like UK, Spain, Japan and
Singapore as well. Emerging economies like China and India are alsoaffected by the negative influence of the US Subprime Market Crisis. Atpresent it seems that this subprime crisis of US is going to generate aglobal recession by affecting the major countries of the world.
The US Subprime Market Crisis has already resulted in US EconomyRecession. The countries like Britain, Spain, Japan, and Singapore aregoing to bear the negative effects of US economy recession. Emergingeconomies like China and India are also suffering from the ill effects of theUS Subprime Crisis. All these countries together form a major part of theglobal economy. So, it can be said that the US Subprime Market Crisis isgoing to affect the global economy as a whole. As all the countriesmentioned above are being influenced in a negative way by the USeconomy recession, it is expected that the growth rate of the worldeconomy would experience a significant fall. According to Alan Greenspan,the Former Federal Reserve Chairman, Global Recession is surely going totake place in some form or other .
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Effect of Recession in India
Certainly there is a lot of effect of US recession on Indian economy. US
recession has a chain affect as US imports many things from other
countries which includes India. Primarily this has impact on export industry
in India which includes textile industry, granite processing industry, tobacco
exports and so on. It is said that already 5 lac people have already lost their
job in Indian textile industry.
This is not the end of the story. Now it has also started showing its direct
effects on all other industries as well which include IT and ITES. Proactively
many of the companies have started taking proactive steps to protect them
self from the gloomy future. Many small companies were closed and readyto close, increasing the unemployed people. This will have lot of impact on
peoples spending abilities and the supply chain effect carries forward.
Is everyone in India affected??
Yes, but many people may not realize it or may not have any direct effects.
Especially people living in cities will are more exposed to this and people in
towns are less exposed to this situation. This is especially because number
of employees working in private firms are susceptible to this situation and
people working for govt. and self employed are less (these people will have
impact only at later stages).
What’s the other side of the coin? Frankly it’s a overall loss to everyone.
But this is the right time for govt. to attract good talent to join in govt.
organizations. That way government can increase its efficiency and also
help country to face this situation. But government has to act quickly for
filling already vacant positions and creating new jobs.
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A Recession is characterized by
Rising Unemployment
It takes time for the unemployment to rise but even when the economy is
recovering it takes time for unemployment to fall. The full impact of a
recession on employment may not be felt for several quarters. Research in
Britain shows that low-skilled, low-educated workers and the young are
most vulnerable to unemployment in a downturn. After recessions in Britain
in the 1980s and 1990s, it took five years for unemployment to fall back to
its original levels. Many companies often expect employment discrimination
claims to rise during a recession.
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Rising Government Borrowing:
A recession is bad news for the government budget. A recession leads to
lower tax revenues and higher government spending on unemployment
benefits. The UK is forecast to borrow 60 billion Euros. This borrowing
means higher taxes and higher interest payments in the future
Falling share prices:
Generally a recession leads to lower profitability and lower dividends.
Therefore shares are less attractive. Share prices often fall in anticipation
of a recession. E.g. the recent fall in share prices are largely because themarket expects a recession soon. During the actual recession share prices
often increase in anticipation of the economy recovering
Business
Productivity tends to fall in the early stages of a recession, and then rises
again as weaker firms close. The variation in profitability between firms
rises sharply. Recessions have also provided opportunities for anti-
competitive mergers, with a negative impact on the wider economy: thesuspension of competition policy in the United States in the 1930s may
have extended the Great Depression.
Social effects
The living standards of people dependent on wages and salaries are more
affected by recessions than those who rely on fixed incomes or welfare
benefits. The loss of a job is known to have a negative impact on the
stability of families, and individuals' health and well-being.