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W hat I s Recessi on ?
A Recession is a contraction phase of the business cycle. National Bureau of Economic Research (NBER) is the official agency in charge of declaring that the economy is in a state of recession.
They define recession as : significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers loose confidence in the growth of the economy and spend less. 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.
World Economy
The world economy grew 5.2% in 2007 Powered by growth in China (11%), India (9%) and Russia (8%).
The BRIC countries had been posting 7%-10% grow rates for years. Property and stock market booms. Investment was bringing economic development. Developing and less developed economies depend on the developed countries for their economic wellbeing.
UNITED STATES IN
Economy.
2/3rd economic activity i.e. GDP
Result
Overconsumption/ Extravagant spending by the consumer
Thus
Started tightening credit , Started restricting lending to the U.S consumer and businesses.
Since then
Loans became difficult to come by banks, Bank cut Credit card limits.
U.S.
Because of layoff Unemployment started to rise which resulted in further reduction in spending by consumer.
of economy.
GDP growth rate fell to 2%
In
5 yr U.S record.
I n ear l yJ ul y,deposi t or s at Los Angel es of f i ces of I ndy M ac Bank l i ned up i nt he st r eet t o wi t hdr aw t hei r m oney.
On J ul y 11, I ndy M ac -t he l ar gest m or t gage l ender i n t he US -w as sei zed by f eder alr egul at or s.
During the weekend of September 14-15, Lehman Brothers declared bankruptcy after failing to find buyers.
Bank ofAm er i ca agr eed t o pur chase M er r i l lLynch,& consor t i um of10 banks cr eat ed an em er gency f und ofat l east $70 bi l l i on t o dealw i t ht he ef f ect s of Lehm an' s cl osur e.
O n Sep 29,Ci t i gr oup beat out W el l s Far go t o acqui r et he W achovi a ' s asset swi l lpay $1 a shar e,or about $2. 2 bi l l i on.
Another bank failure occurred on September 25 when JP Morgan Chase agreed to purchase the banking assets of Washington Mutua
history also makes 2008 a record year in terms of assets with Lehman's $691 billion in assets all past annual totals.
The year also saw the ninth biggest bankruptcy with the
I M PA C T O F G LO B A L R EC ESS I ON ON I NDI A
share market than they bought in the recent weeks. This has added to the fall of sensex to lower points.
employment market. There is already anecdotal evidence of this in the IT and financial sectors, and reports of quiet downsizing in many other fields as companies cut costs.
Many companies has laid off their staffs, the
number of tourists inflow to India has come down, companies have cut down compensations and perks etc, government and other private companies are reluctant in starting new ventures and starting new projects etc.
estate, where building projects are half-done all over the country and in this tight liquidity situation developers find it difficult to raise finances.
drop prices, which had reached unrealistic levels and assumed the characteristics of a property bubble, so as to bring buyers back into the market, but there is not enough evidence of that happening.
Recession in jobs availability and companies following downsizing in the existing available staff and cutting down of the perks and salary corrections. Globally the financial sector sacking the existing base of employees
In high numbers in US the major example being CITI Group same still followed by others in hospitality industry Jet and Kingfisher Airlines too. The cut in salary for the pilots being 90 % can any one imagine
For the first time in five years, Indias export growth has turned negative. Exports for October 2008 contracted by 15% on a year-on-year basis. This should not surprise as the OECD economies that account for over 40% of Indias export market have been slowing for months.
With the US and EU already entering a phase of recession, Indias export growth had to fall sharply. It must be noted this growth contraction has come after a robust 25%-plus average export growth since 2003. A low-to-negative growth in exports may continue for sometime until consumption revives in the developed economies.
A slowdown in export growth also has other implications for the economy. Close to 50% of Indias exports textiles, garments, gems and jewellery, leather and so on originate from the labour-intensive small- and mediumenterprises.
In summary, at the macro-level, a recession in the US may bring down GDP growth, but not by much. At the micro-level, specific sectors could be affected. Innovation now may prove to be the engine for growth when the next boom occurs. For US firms, who have long looked at China as a better investment destination, this may be a good time to look at India as well. After all, 350 million people with purchasing power cannot be ignored. This is not a sales pitch for India, but only a gentle suggestion to US corporations.
Indian companies have major outsourcing deals from the us. Indias export to the us also grown substantially over the years. Indian companies with big tickets deals in the us are seeing their profit margin shrinking.
Shar e m ar ket !
Most people have sold the shares. Foreign investors have pulled out from stock market.
Stock broking houses are laying-off people.
Industry, investment banking and other industries as well are confronting heavy loss due to the fall down of global economy.
Inflation and psychological impact of the us crisis. benefits are missing as companies look to cut cost. India's export growth is also slowering down. one of the casualties this time are real estate,
where building projects are half done al over the country and in this tight liquidity situation developers find it difficult to raise finance.
Federation of Indian chambers of Commerce and Industry (FICCI) found that faced with the global recession, inventories industries like garment, gems, textiles, chemicals and jewellery had cut production by 10 per cent to 50 per cent.
I ndust r i alsect or !
that stuck with cash flow issues on business that are yet to reach break even, will run out of cash.
Car, bike & truck sales down. Steel plants also cutting production. Hospitality and airlines are hit by poor demand.
are hesitant to take up new projects. And they are working on existing projects only.
Projections indicate that up to one crore persons could
lose their jobs in the correct fiscal ending March. . The one crore figure has been compiled by Federation of Indian Export Organisations (FIEO), which says that it has carried out an intensive survey.
The textile, garment and handicraft industry are worse
effected. Together, they are going to lose four million jobs by April 2009, according to the FIEO survey
Banki ng sect or !
liquidity crunch. Lehman Brothers had invested a great amount in the stocks of Indian banks that have invested in derivatives.
A sudden fall in the economy directly affected
leading international bank, ICICI Bank, a bank that had invested in Lehmans bonds. This meltdown even have covered the Axis Bank but not to a great extent.
some of the real estate companies like Peninsula Land Ltd and DLF Assets. These have also suffered a heavy loss.
With all this, the Indian Sensex swung violently
downward, mainly because of the foreign companies pulling out credits to meet high inflations.
Central banks have worked to improve liquidity
but are charging higher credits. The interest rates have drastically increased from 11.5% to nearly about 16%.
A coordinated fiscal stimulus by countries that are in a position to do so would help to mitigate the severity and duration of the recession. It would also send a strong signal to investors around the world. resort to fiscal stimulus may be viewed as risky in some situation, but if we are indeed on the brink of the worst downturn since the great depression, the risk may be worth taking, he added.
Corrective
money by unwinding the market stabilisation securities that it had used to sterilise the inflows when they happened.
This will mean drawing down the dollar
more.
Taxes including excise duty and custom
duty should be reduced to lighten the adverse effect of economic crunch on various industries.
In real estate the builders should drop
and improve liquidity , while CRR and SLR must be cut further.
Indian Companies have to adopt a
multi-pronged strategy, which includes diversification of the export markets, improving internal efficiencies to maintain cost competitiveness in a tight export market situation .
First 50 bps cut w.se.f. October 25, 2008 and another 50 bps cut from November 08, 2008.The current CRR is thus 5.5. The Cash Reserve Ratio (CRR) has been further cut by 50 basis points from 5.5 per cent to 5.0 per cent from the fortnight beginning January 17, 2009.
Reserve Ratios (2008) Cash Reserve Ratio 5%. Statutory Liquidity Ratio 24.0%.
Lending or Deposit Rates (2008) Prime Lending Rate 12.75%-13.25%. Saving Bank Rate 3.5% Deposit Rate 7.50%-10.75 .
at low rate.
packages to organizations.
If I talk about India, here the
going up.
The real state was doing good
business.
But nowadays the condition of
Sour ces
www.google.com. www.wikipedia.com. Business line the
magazine.