Recession and Its Impact
When there is a slowdown in economic activity and business cycle starts contracting, recession kicks in.
Just like human body, economies also sometimes feel under the weather. The period of stagnation an economy goes through is commonly referred to as recession. Common symptoms of recession may include sudden fall in production, employment, business profits and capacity utilization. During recession, financial activities of businesses start to shrink, causing dip in profits—which ultimately leads to bankruptcies. Another bad aspect of recession mess is that unemployment rate rises leaving thousands of people jobless.
Recessions usually happen when there is a massive fall in spending after a severe supply shock (sudden increase/decrease in goods supply). A common measure governments usually take in order to tackle recessionary period is use of expansionary macroeconomic policies which include injecting money into economy and cutting taxation.
Time Period of Recession
Recessions generally last from 6 to 18 months. According to economists, recession can be defined as two consecutive quarters of negative economic growth in gross domestic product (GDP).
Impact of Recession
Large businesses: Big businesses are one of the biggest victims of recessions. When a recession occurs, multinational firms, banks and big manufacturers find themselves in deep trouble as the general economic environment becomes hostile to their operations. For instance a steel manufacturing company may find itself in trouble when it sees its revenues shrinking—which technically causes slump in profits.
As big businesses usually employ large workforce—fall in profits will force the company management to cut back on labor costs laying off hundreds of its employees. The vicious cycle created by recession spreads to other departments like production, marketing etc crippling operations of the manufacturing company.
The impact of recession is obviously not limited to this manufacturing company; it also traps thousands of other industries breaking momentum of the overall economic cycle.
Stock market (falling stocks, dividends): As manufacturing firms and other big corporations bear the brunt of recession and their revenues fall, their stock prices also get hurt forcing investors to avoid investing in stocks.
Bankruptcies: Cash flow is a very important element for companies. Cash is what keeps companies in business. As recession causes general fall in production, employment, capacity utilization etc, cash position of businesses becomes weaker—which resultantly creates serious cash flow problems forcing companies to file for bankruptcy.
Conclusion Recession is a vicious cycle that traps just about everyone — from large businesses to a roadside shopkeeper. However recessions are not unnatural as they are inevitable and happen following peak in economic activity. Economic activity normally regains momentum after recessionary period.
Just like human body, economies also sometimes feel under the weather. The period of stagnation an economy goes through is commonly referred to as recession. Common symptoms of recession may include sudden fall in production, employment, business profits and capacity utilization. During recession, financial activities of businesses start to shrink, causing dip in profits—which ultimately leads to bankruptcies. Another bad aspect of recession mess is that unemployment rate rises leaving thousands of people jobless.
Recessions usually happen when there is a massive fall in spending after a severe supply shock (sudden increase/decrease in goods supply). A common measure governments usually take in order to tackle recessionary period is use of expansionary macroeconomic policies which include injecting money into economy and cutting taxation.
Time Period of Recession
Recessions generally last from 6 to 18 months. According to economists, recession can be defined as two consecutive quarters of negative economic growth in gross domestic product (GDP).
Impact of Recession
Large businesses: Big businesses are one of the biggest victims of recessions. When a recession occurs, multinational firms, banks and big manufacturers find themselves in deep trouble as the general economic environment becomes hostile to their operations. For instance a steel manufacturing company may find itself in trouble when it sees its revenues shrinking—which technically causes slump in profits.
As big businesses usually employ large workforce—fall in profits will force the company management to cut back on labor costs laying off hundreds of its employees. The vicious cycle created by recession spreads to other departments like production, marketing etc crippling operations of the manufacturing company.
The impact of recession is obviously not limited to this manufacturing company; it also traps thousands of other industries breaking momentum of the overall economic cycle.
Stock market (falling stocks, dividends): As manufacturing firms and other big corporations bear the brunt of recession and their revenues fall, their stock prices also get hurt forcing investors to avoid investing in stocks.
Bankruptcies: Cash flow is a very important element for companies. Cash is what keeps companies in business. As recession causes general fall in production, employment, capacity utilization etc, cash position of businesses becomes weaker—which resultantly creates serious cash flow problems forcing companies to file for bankruptcy.
Conclusion Recession is a vicious cycle that traps just about everyone — from large businesses to a roadside shopkeeper. However recessions are not unnatural as they are inevitable and happen following peak in economic activity. Economic activity normally regains momentum after recessionary period.
Source...