UNDERSTANDING

RECESSION

S.Imam
Hassan 01
 DEFINING RECESSION
• A recession is a contraction phase of the business cycle
where significant decline in economic activity lasts more
than a few months, which is normally visible in real GDP,
real income, employment, industrial production, and
wholesale-retail sales

• A recession is defined as a decline in countries GDP growth

for two or more consecutive quarters of a year.

• Recession is also preceded by several quarters of

slowdown.
 GDP-Gross Domestic Product
• The gross domestic product (GDP) or gross domestic income
(GDI), a basic measure of an economy's economic performance, is
the market value of all final goods and services made within the
borders of a nation in a year

• The most common approach to measuring and quantifying GDP is

the expenditure method:
• GDP = consumption + gross investment + government spending
+ (exports − imports), or,
GDP = C + I + G + (X − M).
• TYPES OF GDP
• Current GDP is GDP expressed in the current prices of the period
being measured
• Nominal GDP growth is GDP growth in nominal prices
(unadjusted for price changes).
• Real GDP growth is GDP growth adjusted for price changes
 INFLATION

•In economics, inflation

is a rise in the general
level of prices of goods
and services in an
economy over a period
of time
 ORGIN OF RECESSION
• 2008 was the year of crisis

• The origins of this crisis go back to the middle of 2007

when evidence that homeowners who had borrowed to
finance the property they purchased had begun
defaulting on their debt.
•
• It bankrupted a host of mortgage finance companies,
banks, investment banks and insurance companies,
including big players like Bear Sterns, Lehman Brothers
and AIG
 .Resulted in a huge pull out of capital from the emerging markets

.Households whose homes were now worth much less more cautious
in their spending and borrowing behaviour, resulting in a collapse of
consumption spending.

.It made banks and financial institutions hit by default more cautious in
their lending, resulting in a credit crunch that bankrupted businesses. It
resulted in a collapse in the value of the assets held by banks and
financial institutions, pushing them into insolvency
 Effect Of Recession
• 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.
 How Is India Affected
• Indian companies have major
outsourcing deals from the US.
• India's exports to the US have also
grown substantially over the years.
• The India economy is likely to lose
between 1 to 2 percentage points in
GDP growth in the next fiscal year.
• Indian companies with big tickets
deals in the US would see their profit
margins shrinking
• The worries for exporters will grow as
rupee strengthens further against the
dollar.
• But experts note that the long-term
prospects for India are stable.
• A weak dollar could bring more foreign
money to Indian markets.
• We should prepare ourselves for lower
growth rates, and slowdown in the
services sector growth, over the next few
years.
• Only good thing about recession is it
reduces inflation
 Measures to be Taken
• The accurate and effective way to prevent
and overcome recession is global
perspective
• Public should spend wisely & save more
• Correction in salary offerings rather in job
cutting
• Taxes should be reduced
• Govt should improve liquidity