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API Assignment
API Assignment
Areej Iftikhar
Javeria Malik
Fatemah Junaid
Maria Malik
Yusra Rehman
Contents
Business Cycle..............................................................................................................................................1
Recession.....................................................................................................................................................1
Causes :.................................................................................................................................................2
A recession is primarily caused by the following phenomena.........................................................2
Examples..................................................................................................................................................3
Global Recession..........................................................................................................................................4
Reasons of Recession in Pakistan.....................................................................................................8
Impact of recession on Business..................................................................................................................8
How to grow business during Recession ?.................................................................................................10
Strategies to come out of Recession..........................................................................................................12
Manufacturing Industry:............................................................................................................................14
Agriculture Industry:..................................................................................................................................15
IT Sector:....................................................................................................................................................15
References.................................................................................................................................................16
Business Cycle
The term "business cycle" reflects fluctuations in the rate of economic output growth
that account for the economy's "potential output" growing steadily. Real gross domestic
product (GDP) is the definition of output, and potential output is the maximum output
that the economy can attain while utilizing all of its resources people, machinery, natural
resources, and technology in a sustainable manner and without unduly driving up prices
in the market.
The four primary stages of a business cycle are peak, trough, contraction, and
expansion. During an expansion, firms hire more workers, households demand more
goods and services, and prices and wages usually go up. The economic activity peaks
toward the end of this phase. During a contraction, firms lay off employees, households
want fewer goods and services, and price and wage growth slows. The economic
activity slump marks the end of this phase.
Recession
Recessions are sometimes defined as two consecutive quarters of decline in real Gross
Domestic Product (GDP), which measures the combined value of all the goods and
services produced in an economy. A substantial, widespread, and extended decrease in
economic activity is also known as recession. A recession's duration is calculated by
economists from the peak of the previous growth to the bottom of the downturn. In
1974, economist Julius Shiskin came up with a few rules of thumb to define a recession.
A decreasing GDP for two quarters in a row was the most popular. Since a robust
economy grows over time, Shiskin contends that two-quarters of declining output
indicates significant underlying issues. Over time, this interpretation of what constitutes
a recession grew to be accepted.
Even though they can end in a few months, recessions can take years for the economy
to return to its previous level. The early phases of a comeback can feel like a prolonged
recession to many since unemployment frequently stays high well into an economic
recovery. An economic downturn results in job losses, lower corporate sales, struggling
businesses, and a drop in the nation's total economic output. There are several
variables that determine whether the economy enters an official recession. Countries
employ monetary and fiscal policies to reduce the likelihood of a recession.
The National Bureau of Economic Research (NBER) is generally recognized as the
authority that defines the starting and ending dates of U.S. recessions. A recession can
begin in a number of ways, such as by an unexpected economic shock or the result of
uncontrolled inflation.
Causes :
Korea
Korea experienced its worst recession in postwar history as a result of the financial
crisis that struck in the latter half of 1997. Before the crisis, real GDP growth had been
averaging between 5 and 10% annually. However, in 1998, this growth rate dropped to
a negative 5.8%.
Though South Korea has been spared the lockdowns that have severely damaged the
economies of the United States and Europe, the country has been unable to stave off a
recession brought on by COVID-19.
The South Korean economy entered a technical recession for the first time since 2003
and saw its biggest loss since 1998 as a result of the GDP contracting 3.3% from the
previous quarter. The GDP shrank by 1.3% in the first quarter, and this decline
continued into the second quarter. The sluggish demand for South Korean exports,
which make up about 40% of the GDP, was the main cause of the GDP fall. The second
quarter saw the biggest quarterly loss in exports since 1963, falling 16.6%.
China
The last significant recession that China went through was in 2008–2009, amid the
world financial crisis. The key drivers of the recession included:
Global Financial Crisis: The global financial crisis, triggered by the collapse of Lehman
Brothers in September 2008, had a significant impact on China. The crisis resulted in a
sharp decline in global demand for Chinese exports, particularly in sectors such as
manufacturing and export-oriented industries.
Decrease in Export Demand: China heavily relies on exports as a major driver of its
economy. The recession led to a substantial decrease in demand for Chinese goods
and services in international markets, causing a significant drop in export volumes. This
decline in export demand had a negative impact on China's manufacturing sector and
overall economic growth.
Economic Interdependence : China's trade and investment have resulted in close
economic integration with the rest of the world. The crisis impacted China's economic
performance, which disrupted supply lines, and decreased foreign direct investment as
it extended throughout the world.
Germany
When Germany had its second straight quarter of negative GDP growth in May of this
year, the country was officially declared to be in a recession. There were two
contractions a 0.3% decline at the start of 2023 and a 0.5% decline at the end of 2022.
While the first few months of the pandemic continue to be the most turbulent in recent
memory for the German economy, consumer spending and total economic activity have
now decreased to their lowest levels since the worst of 2020. Compared to the UK and
France, Germany is far more dependent on Russian oil, which is the primary cause of
its problems. The chemical industry has had an 18% decline in production since 2019,
and the car industry has seen a 26% decrease in production due to high energy prices.
Germany is the largest economy in Europe, hence the effects of its poor growth cannot
be overstated. As of June, Germany was largely to blame for the Eurozone's overall
recession.
Global Recession
Global recession refers to the economic retardation observed in different nations
worldwide. While recession affects one country at a time, its elongation severely affects
other economies related to the affected one. Such events lead to a rise in the
unemployment rate and an increase in the price and consumption of commodities, like
oil, per capita investment, etc. As countries recover from the recession, they become
more efficient than ever.
Global recessions can be caused by a variety of factors, including as wars, the collapse
of asset and energy prices, the price of commodities and energy itself, dwindling
demand, lower wages, lower consumption, and a general drop in investor and
consumer confidence. Furthermore, when the recession deepens, people become even
more risk apprehensive, which exacerbates the situation.
Recessions have a negative impact on every country, ranging from increased
unemployment to tighter credit availability. Furthermore, the effects of a global recession
are felt throughout a number of different countries. The worldwide economic downturn
results in elevated joblessness and a reduction in earnings. Employers lay off workers in
an effort to protect themselves from mounting losses. Because of this, customers are
forced to reduce their spending, which exacerbates the effects of the recession.
Additionally, the unemployment rate is higher and earnings are lower.Furthermore,
investors withhold their money and liquidate their holdings, which causes the value of
riskier assets to plummet. Because of this, the financial institutions experience frequent
defaults, which reduce their net worth and can occasionally result in bankruptcies.
Furthermore, as investors seek out safe-haven assets to protect their cash, the price of
gold rises.
Global economic recessions can be beneficial if they help some countries with extra
resources which balance out the richness of the other economies, but they also
severely hinder economic activity globally. Four significant global recessions have
occurred since the 1950s, the most recent of which being the global recession is of
2008.
Recession History
The Oil Embargo Recession: November 1973–March 1975
Duration: 16 months
GDP decline: 3%
Peak unemployment rate: 8.6%
Reasons and causes: The beginning of the Arab Oil Embargo, which caused
crude prices to quadruple, triggered a prolonged and severe recession. The
economy was already struggling with the devaluation of the dollar, high trade and
budget deficits, and declining domestic crude output. The collapse of the Bretton
Woods Agreement, which fixed currency exchange rates, was one of the major
factors behind the rise in US inflation from 2.4% in August 1972 to 7.4% a year
later. This led the Fed to double the federal funds rate to 10% between late 1972
and mid-1973. In the first half of 1974, the Fed further increased the federal
funds rate to 13%, only to cut it to 5.25% in less than a year. Despite the end of
the recession, inflation and unemployment remained high, leading to stagflation.
Unemployment peaked at 9% in May 1975, after the official end of the recession.
Double-Dip Recession: July 1981–November 1982
Duration: 16 months
GDP decline: 2.9%
Peak unemployment rate: 10.8%
Reasons and causes: Inflation peaked at 11.1% by the fourth quarter of 1980,
which led the Federal Reserve to increase the fed funds rate to 19% by July
1981. Despite the worsening downturn and surge in unemployment, Volcker
remained steadfast and resisted repeated demands in Congress to change
course. In October 1982, inflation fell to 5%, but unemployment remained above
10% until mid-1983. Most economists agree with Volcker's reasoning that failure
to control inflation and restore the Fed's credibility would have resulted in
continued economic underperformance.
The Gulf War Recession: July 1990–March 1991
Duration: Eight months
GDP decline: 1.5%
Peak unemployment rate: 6.8%
Reasons and causes: The economic recession that began just before Iraq's
invasion of Kuwait was relatively mild. The shock in oil prices resulting from the
invasion might have played a role in the slow recovery. To tackle inflation, the
Fed had raised the federal funds rate from 6.5% in February 1988 to 9.75% in
May 1989. Inflation had risen from 2.2% in 1986 to 3.9% in 1990.
The Great Recession: December 2007–June 2009
Duration: Eighteen months
GDP decline: 4.3%
Peak unemployment rate: 9.5%
Reasons and causes: The decline in housing prices across the United States
had a ripple effect, resulting in a worldwide financial crisis. It led to a bear market
in the stock market, with the S&P 500 falling by 57% at its lowest point, and the
worst economic downturn in decades since the recession of 1937-38. The inflow
of global investments into the U.S. had the impact of keeping market rates low,
which may have encouraged unscrupulous mortgage underwriting and marketing
practices for mortgage-backed securities. In 2008, oil prices hit an all-time high
before drastically dropping, which had a significant impact on the U.S. oil
industry. This sudden decline in oil and commodity prices resulted in deflation
and created a strain on the U.S. economy.
The COVID-19 Recession: February 2020–April 2020
Duration: Two months
Reasons and causes: The COVID-19 pandemic hit the U.S. in March 2020, and
due to the travel and work restrictions, the employment rate declined drastically,
leading to a short but intense recession. The unemployment rate surged from
3.5% in February 2020 to 14.7% in April 2020. However, with the help of $5
trillion in pandemic relief spending, the unemployment rate gradually decreased
and was below 4% at the end of 2021. The Federal Reserve also implemented
quantitative easing, which caused its balance sheet to expand from $4.1 trillion in
February 2020 to almost $9 trillion by the end of 2021. The federal funds rate
remained near zero until March 2022.
Recession in Pakistan
The recession hit Pakistan's economy shortly after the country gained independence.
The entire decade of 1950 was marked by economic stagnation, which might be
ascribed to social unrest, inadequate infrastructure, a feeble or nonexistent industrial
foundation, a lack of confidence within the private sector in the nascent economy, etc.
Following East Pakistan's separation and the creation of Bangladesh as a result of the
capitulation, the first phase of stagflation started in the 1970s. During the 1970s,
stagflation was a state of high inflation and uneven economic growth. Stagflation was
caused by large budget deficits, decreased interest rates, the oil embargo, and the
demise of regulated currency rates.
The beginning of 2008 saw the rapid deterioration of both internal and external
imbalances, which led to the development of the Pakistani crisis. From a rate of 7% in
the year before, inflation quickened and shot to 25%.The Economist reports that the
rate of inflation has been 15% for the year 2008. Real GDP growth was expected to
decelerate significantly in the fiscal year 2008/09 (July–June), but would average 5%
annually between 2009/10 and 2012/13, primarily due to private consumption and
investment. The persistent scarcity of energy would continue to put pressure on the
textile industry as well as other manufacturing and service sectors.
The current economic crisis in Pakistan during 2022–2023 is a component of the
country's political upheaval during that same period. For months, it has resulted in
serious economic difficulties, which has raised the cost of food, gas, and gasoline. Fuel
prices have increased globally as a result of Russia's invasion of Ukraine. Over time,
the nation's excessive external borrowings increased the risk of default, which
depreciated the currency and increased the relative cost of imports. In June 2022, food
costs had risen to an unprecedented level and inflation had reached its peak. The nation
is experiencing a balance of payments crisis as a result of poor governance and low
productivity per capita when compared to other low- to middle-income developing
nations. This is because the nation cannot generate enough foreign exchange to pay for
its imports.The greatest challenge Pakistan has faced since gaining independence is its
economic one.
By enhancing and improving your operating processes, you will now have the
resources needed to service the increased number of customers gained from
following the preceding steps.
Fire Your Worst Employees, While Assuring the Rest of Your Staff that You
Are Committed to Them and Their Well-Being
Many times businesses don’t fire or poor hires because they fulfill an essential function
and keeping them on staff, even at a cost, is easier than training a new person.
However, you should consider the expanded talent pool a recession provides .Good
employees are invaluable, which is why you should assure your core team that you will
stand by them through the crisis.
Below are some strategies for business survival during a recession you can employ to give
your business and give the best chance to flourish it.
1. Cut or reduce unnecessary costs
During recession when time is tough and you need to cut unnecessary cost for your
business to growth.The following steps must be taken.
Negotiating down your monthly rent and any other supplier costs
Find cheaper vendors for utilities and cut any non-essential technology costs
Delay payables and collect receivables sooner
Consider whether poorly performing employees are worth retaining
Look at flexible staffing options
2. Protect Cash flow
Maintaining a healthy cash flow is always essential for your business but it might
require extra attention in this difficult economic landscape. Managing cash flow poorly
can result in small businesses struggling, especially during times of recession. Before
the recession, company could absorb the impact of past due invoices because there
was plenty of invoiced sales to go around. Now that the pace of invoiced sales has
dropped, those past due invoices have slowed cash flow down to a trickle. Your
company cannot move forward without cash to fuel it. During a recession, banks tend to
pull back on loans and lines of credit. If you want a strong cash flow during a recession,
then you need a way to collect on your invoices on or before their due dates.
3. Nurture your existing customer base
Reach out to your existing clients or customers and ask them what they want or need from
you. Listen to them and then deliver outstanding customer service. If your existing customer
base is nurtured throughout a difficult time, they are more likely to be loyal and recommend
you to their networks. You might even consider cutting the bottom 20% of your worst-
performing customer base to ensure you’re devoting precious resources to those that are
worth it.
4. Support the employees you are retaining
A recession naturally provokes anxiety and fear, especially if costs are being cut and
employees are being furloughed or even laid off. Letting your poorest-performing employees
go may be a step you need to take. If so, build morale and motivation in the employees
you’re retaining by clearly communicating with your staff what is happening within the
business. Try to involve them in the decision-making process, so they can feel included and
part of the solution. Motivate them to work hard because you’re all in it together.
5. Operational efficiency
In order to optimize cash flow, businesses should identify areas where operations can be
streamlined or automated. By identifying redundant operations across departments,
businesses can eliminate unnecessary expenses and enhance overall efficiency. This not
only reduces costs but also improves productivity.
6. Diversify your offerings
Whether you provide goods or services, you can add to your offering and create another
revenue stream. For retailers, it can simply be adding new inventory items. For a landscaping
business that normally provides lawn maintenance services, it may be adding paving
services. Adding new products or services that are complimentary to your existing line is
called horizontal diversification. Expanding along your same line is called vertical
diversificationExplore new products or services that align with the changing needs and
preferences of customers during a recession. This can help you tap into new markets and
generate additional revenue streams.
7. Explore international markets:
Consider expanding your business into international markets, where economic conditions
may be more favorable. This can help diversify your customer base and reduce dependence
on a single market.
Manufacturing Industry:
Historically, manufacturing has been more susceptible to recessionary forces
than other sectors of the economy—but it’s worth noting the industry has
experienced faster recovery periods, as well. Forbes reports that between the
recession of the early 2000s and the Great Recession of 2008, industrial
manufacturers experienced 300% higher recoveries in corporate profits
compared to companies in other sectors. This boom in production led to
economic growth across all industries and helped propel the economy
out of recession. Supply chain challenges, workforce shortages, and inflationary
pressures such as rising energy costs and increasing raw material prices, have
had a significant impact on the manufacturing sector in recent years.
Manufacturers that implement process improvement technologies can now
expect short-term gains in quality, efficiency, and productivity that have long-
term dividends.
Here are three ways resilient manufacturers are positioning their organization for
continued growth.
Agriculture Industry:
During a recession, operational efficiency becomes more important than ever. This
means streamlining processes, automating tasks, and eliminating redundancies.
Consider adopting lean management techniques to improve workflow and reduce
waste. Cotton and cotton-related products are discretionary items. Thus, cotton prices
tend to follow the economy, with rising cotton prices during economic growth and
declining cotton prices during recession.
The 2020 recession was an anomaly in so many ways with its services-led contraction.
The disruption of the food chain and the stay-at-home environment kicked off food
inflation. This caused a major spike in food spending relative to the overall economy.
Just prior to the recession, food expenditures were down to 4.8% of GDP. During the
lockdown quarter, they spiked to almost 6% of GDP, and the most recent
quarter was 5.3%.
IT Sector:
In the IT sector, the impact of a recession can be particularly significant, as companies
that rely heavily on technology may cut back on their IT budgets and investments. This
can result in decreased demand for IT services, products, and software, and can also
lead to job losses within the sector. During a recession, IT companies may face a
number of challenges, including:
Reduced demand for IT services: During a recession, companies across all
sectors tend to cut back on their investments and expenditures, which can result
in a decline in demand for IT services, products, and software.
Decreased IT budgets: As companies look to cut costs, they may reduce their
IT budgets, which can impact IT service providers, software vendors, and other
IT companies.
Increased competition: As the demand for IT services declines, competition
among IT companies may increase, as companies fight for a smaller pool of
business.
Talent retention: During a recession, companies may lay off employees,
including IT professionals. This can result in a loss of skilled workers, which can
impact the ability of IT companies to deliver services and develop
new technologies.
Textile Industry:
The decreased demand from the USA over a global spike in cotton prices due to supply
shortages and disturbance in the container supply chain may entail inventory holding.
Inventory holding could in turn lead to lower order flows to sourcing partners globally.
Textile sourcing partners and brands should aim to maintain their margins by keeping a
close watch on raw materials, higher logistics and unit costs. The textile industry is
dependent on global ups and downs, so self-dependence via the technological route
can result in cost-optimization and streamlining production and delivery.
Automobile Manufacturers:
Auto manufacturers are also likely to be hit hard in recession by laying offs in the
coming months. Since the industry is also facing issues regarding the sourcing of parts
and high interest rates. Rapid inflation spikes and rising fuel costs can lead to
consumers holding back on major purchases. The reason behind this is buyers, who
have tighter budgets during the recession, switch from new to use car purchases which
increases demand as a result.
Managing Business:
It’s impossible to predict when a recession will happen or what will cause it. But there
are some common symptoms of a recessed economy that impact businesses. Once
you understand what they are, you can better prepare your business and your
workforce for an economic retraction.
Here are five strategies for identifying how a recession might impact your business and
how to handle it.
Assess your business’s health:
In the months leading up to a recession, consumer spending and available capital can
both decline, which can cause a business to feel a pinch in their budgets.
This means some difficult decisions may have to be made regarding product pricing,
marketing initiatives, hiring, benefits and even new launches. While each business will
experience a recession in unique ways, the most common challenges faced by
companies of all sizes include
Temptation to cut product size, quality and benefits – or raise prices. When lagging
sales no longer pay for the cost of doing business, businesses may look to products to
find wiggle room in the operating budget.
Not enough capital to pay employees. Companies may feel they can no longer pursue
plans to expand operations, pay bonuses or even keep the workers they have.
Lower employee morale and productivity. Frequent layoffs and employees asked to do
more with less can lead to a culture of apprehension. Productivity can suffer when
employees feel uncertain and unmotivated by bad news.
References
https://www.businessinsider.com/personal-finance/what-is-a-recession
https://datatrained.com/post/recession-in-india/
https://www.nber.org/system/files/working_papers/w7483/w7483.pdf
https://thediplomat.com/2020/08/covid-19-pushes-south-korea-into-recession/
https://www.dawn.com/news/872514
https://www.sbp.org.pk/publications/wpapers/2008/wp01.pdf
https://en.m.wikipedia.org/wiki/Periods_of_stagflation_in_Pakistan
https://news.umich.edu/pakistans-economic-crisis/
https://www.indiatoday.in/business/story/pakistan-economic-crisis-energy-
imports-inflation-forex-reserve-gdp-jobs-2317680-2023-01-05
https://www.investopedia.com/articles/economics/08/recession-affecting-
business.asp#:~:text=product%20(GDP).-,Businesses%20large%20and
%20small%20face%20declines%20in%20sales%20and
%20profits,collections%2C%20and%20spur%20business%20bankruptcies.
https://www.markeluk.com/articles/how-does-a-recession-affect-businesses-
and-their-value-chain-and-supply-chain
https://comradeweb.com/blog/5-ideas-to-grow-your-business-during-
recession/