“Market crash shakes the world” was the headline in one of the newspapers of the USA during October in 2008, this news was preceded as well as followed by a number of market crash news in US and other global nations. Millions of people lost their jobs and houses. The poverty rate increased from 12.5 to 15% in just the span of 3 years (2007-2010). This period was called the Great Recession. It had a great impact on the global economy as a whole.
Recession being a by-product of inflation, starts with decrease in the spending power of consumers, which lowers the demand curve. Reduced demands breaks the small and large business cycle, resulting in increased sales, reduced quantity/quality of products, Software Development Employee layoffs, salary cuts, increased debts, blocked developments and so on as a result of low sales and bad debts. It works in a butterfly effect way and impacts the global economy like a vicious cycle is varied ways as mentioned below:
1. Employment Issues:
During recession employees are laid off or suffer pay cuts and poor benefits silently with the fear of losing their jobs. Job seekers struggle with job hunting.
2. Reduced Purchase Power
Increased inflation declines the spending capacity of people, followed by reduced purchasing power which impacts the economy as a whole.
A negative economic growth due to decreased sales and profits along with increased bad debts lead to bankruptcy of businesses, government and economy in all.
4. Increased Debts
Loss of sales and profits along with bad debts leads small, big businesses and among government bodies. Recurring and long term debts lead to depression
5. Assets Lose Value
As an after effect of reducing investments and declined purchasing power depending on its type and usage lose value. People liquify the assets at lower prices to pay off debts while a handful of individuals and institutions advance by making purchases at lower values.
6. Drop in Interest Rates
Varied dynamic elements like declined investments, loan burrows, spending habits reduce loan applications, followed by which banks reduce interest rates to encourage loans.
7. Stagnant Development
Recession over a period of time impacts the entire economy, declined income and increased debts being primary obstacles, growth and developments are slowed down or held until the market is stable.
The Great Recession was a result of the bursting of the property bubble. Experts predict that Recession would arrive in the third quarter of this year. Some of the causes for upcoming recession include COVID- 19 outbreak, quick technological advancements, increased inflation etc.
(Author: Alisha Fernandes is an inquisitive learner & content writer at TechDoQuest)