order-now-button-hover Cause and Effect of an Economic Recession
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October 4, 2020REGULATORY MEASURES
October 4, 2020order-now-button-hover Cause and Effect of an Economic Recession
They say experience is the best teacher, well; some lessons are when not learnt. Few can claim not to have heardor experienced firsthand, the infamous 2008 Economic Recession.Words befitting its description are a global financial tragedy that spared no one in the countriesthat fell victim. This was just one of the many such occurrences that have rocked the global economies from the mid twentieth century.The repercussions were hard to ignore; it inflicted long-term scars on world economies that would take years to recover.
Recession best describes a period characterized by a remarkable decline of economic activities (Claessens & Kose, 2009). Major causes of the economic recession include sudden asset price increases, problems in the finance market among other reasons (Claessens & Kose, 2009. This paper seeks to elaborate on the aftermath this economic recession.
While some business ventures survived the scare, mostpaid the ultimate price of closing down. A recession comes with it reduced economic activities. Companies employed ungainly tactics like price wars and extensive promotions in order to maintain their sales. This resulted in reduced revenue collections. People could no longer afford to spend other than on providing for their basic needs. Entertainment and leisure industries were hard hit. Industries that relied on tourism could hardly remain in business. Industries depending on sales of costly one-night tickets had to reduce these prices by a significant margin if they were to attract a sustaining number of customers (Keegan, 2008).
Other than business closures, the recession also caused widespread unemployment. Recession not only results in loss of employment, but also prevent any growth of the same (Wall, 2009). As consumption reduced, profitability of companies was threatened. The need to mitigate the situation arose; the easiest and fastest way is always laying off employees. Most companies opt to downsize their workforce to reduce expenditures and compensate for the lost profits. The lowest grade and new employees are always the first victims. In extreme cases, most small businesses end up closing down. Dejected employees wenthome without a clue as to what their future held. In addition, new graduates entering the job market could not get any employment. This further heightened the employment crisis and adversely affected the economy.
With reduced incomes, low profitability and unemployment, the recession was not done yet. One more blow to the economy was underinvestment. With the uncertainty in terms of consumption, investors were reluctant to invest in new technology or expansion. Reduced access to credit also contributed majorly in deterring investment (Irons, 2009). A reduced investment result in reluctance to hire new employees and in underutilization of the existing employee’s skills (Irons, 2009).
Economic recession had pronounced effects on the stock market and share prices. The recession affects companies; these companies own shares that make up the stock market. Investor confidence in the stock market, reducedwith uncertainties presented by the recession. The decline in the stock market resulted in a decline in individual stocks as well; this in turn decreased the dividends of the companies.In the case of a recession, investors tend to sell off their stocks in favor of less risky investment ventures such as investing in the treasury bonds; this reduces the share prices in the market (Carty, n. d). A huge amount of money shift out of the stock market, which further declines the stock market.
Finally, an economic recession triggers an increase in government debts. In a bid to mitigate the negative effects of a recession, and cushion citizens, the government’sresolutionsare often to borrow funds from world financial institutions or other governments. This result is an increase public financial debt.
Economic recession is more evil than good; its effects extend everywhere. The effects not only affect the immediate family victims, but also extend to their children. Countries affected take years to recover and return to normal growth pattern.
