What is the economic recession? Economic problem? Do nations fight with it? The world? How has 2020’s economic recession become one of the most disastrous ones after the Great Economic Recession during World War 2?
An economic recession in simple terms is when an economy shrinks, jobs are a handful, and investors get zero to nil return on their investments. Whenever a nation gets hit by a natural disaster, famine, pandemic or unprecedented problem, it tends to go through economic ups and downs that we term as shrinkage/ economic problem, but if these problems hit a continent or a larger part of the world and it leads to economic issues, we term it as ‘recession.’
Before we understand how recession occurred and how it engulfed the maximum area of the globe into its vicious cycle due to global pandemic COVID-19, let’s look at some basic economic terms-
- GDP (gross domestic product)- The GDP is described as the total monetary or market value of the finished goods and services produced within a country during a specific period of time. When a recession hits, GDP goes negative by more than two quarters.
- Growth Rate– Growth rate refers to the change in values of the goods and services produced within a country during a period of time. These rates are compiled and analysed, which reflects the positive or negative growth of a particular state/nation.
HISTORY OF ECONOMIC RECESSIONS
The Great Economic Depression of the 1930s: During the Great Economic Depression of the 1930s, the global GDP reduced by 15 %. It is to date the most prominent example of how grave economic depression can be until what *2020’s recession has in bad isn’t revealed. It started in the U.S. on October 24, 1929, when a colossal crash occurred at the New York Stock Exchange as stock prices fell by 25 percent. Global trade reduced by around 50%. Many countries could not resume their developmental parade until World War II, instead plunged more deeply into it.
*The World Bank recently issued a statement saying that this is the first recession that has been triggered by a pandemic since the 1870s. The recovery from this sluggish push will require additional interjections.
According to the World Bank’s report, the total production would shrink by seven percent, which is a considerable margin, and the global economy would shrink by 5.2% as a whole. Trade, tourism, domestic demand, and supply have been affected severely, which is causing shrinkage at such high levels all across the globe. According to Moody’s report, the Indian GDP would shrink by 3.19%. As for the G20 countries, the contraction rate would be 6.4%.
The financial crisis of 2007-2008- The global financial crisis of 2007-2008 was also very severe as it involved banks going bonkers and taking risks of borrowing and lending too much, which created an atmosphere of recession in the world. It was also accompanied by European and Iceland’s recession in the following years.
The economic recession of 2020- The economic recession of 2020 has been instigated by Covid-19 that has engulfed development completely. Education and health care have also been severely affected, along with other significant sectors. The U.S. economy is said to contract by 6.1%, European output to shrink by 9.1% and the Japanese economy is supposed to contract by 6.1%. The Indian economy would also shrink by 5%. The immediate effects and aftermath are still being calculated.
EFFECTS OF ECONOMIC RECESSION
Increased costs, falling revenue, stagnant development, and increased debt are some of the most fundamental problems that occur during a recession. It becomes difficult for the company to carry out all the activities at once, and it looks forward to laying off of staff.
Unemployment:- The first, foremost, and the most apparent impact of any kind of economic crisis is unemployment. Many people lose their jobs even in big companies. As per a Reuters report, more than 36 million U.S. citizens have applied for unemployment benefits.
Cost-cutting:- Cost-cutting is one of the parts of unemployment. It is a process in which a company removes those employees or staff that are not a part of the core activities. During this lockdown period, many companies across the globe have initiated this process as maintaining people with high payrolls has become quite problematic to sustain. Also, many subsidiary activities are brought to a halt so that the expenses are made on only core activities.
- Nielsen Holdings will be cutting off 3,500 employees as a part of its reconstructing efforts.
- Recently, Uber closed down its office in Mumbai as a part of a cost-cutting drive across the globe. Previously it had fired 2,500 employees over a zoom call.
Impact on Luxury Goods: The hit to fashion and luxury sales from coronavirus recession is expected to plunge between 25-30% this year as a direct result of store closures owing to lockdown. Brands like Victoria Secret have declared bankruptcy, and Patek Philippe has stopped production. Other luxury brands are offering considerable sales in order to clear their stock.
Note:- The NBER (National Bureau of Economic Research) officially declared an end to the economic expansion in February of 2020 as the U.S. fell into a recession amid the coronavirus pandemic which means development has taken long-off and isn’t coming back for days.
All around the globe, war tensions are emerging. People are protesting, and countries are focusing more on buying arms and ammunition than essential supplies, and borders are getting secured and prepared at the same time. It looks like everything is going full circle once again. So maybe just maybe this could be worse than the Great Economic Depression.
According to several reports, very few countries will be entering a complete lockdown phase that would ensure gradual development. Also, additional measures would have to be taken to come out of the horrendous economic situation, but with combined efforts of all the nations, the world economy can be brought back on track.