RECESSION IN ECONOMY,

CAUSES AND CHALLENGES TO

RECOVER FROM RECESSION
 GROUP MEMBERS

MEHWISH JAVED 41
NADIA JABEEN 15
SUGHRA AZEEM 16
FARWA
AGENDA

What Is Recession

Causes Of Recession

Challenges Of Recession

Economic Survey

How To Recover From Recession

BUSINESS CYCLE

The business cycle/ economic cycle/ trade cycle is the

downward and upward movement of the gross domestic
product (GDP) around its long term trend.
Phases of business cycle:
1. Expansion
2. Peak
3. Contraction
4. Trough/ depression
4 phases of business cycle
RECESSION

 Recession is a period of negative economic

growth for two consecutive quarters.
 Contraction of business cycle.
Demand curve
 Recessions are primarily caused by a fall in
aggregate demand(AD).
CAUSES OF RECESSION
Nadia Jabeen
Roll # 15

Challenges of Recession
 1. Falling Output
 Recession is generally identified by a fall in GDP in two
successive quarters.
 Real GDP will decrease during economic downturns due to
the slowdown in industrial production.

Year 2018 2019 2020

GDP 5.5% 3.3% 2.4%

https://www.ceicdata.com/en/indicator/pakistan/real-
gdp-growth
 Business sales and revenues decrease.

 According to a new report of IMF, the GDP in

2019 was recorded at 3.3 %, down significantly
from the 5.5% registered a year prior, in 2018.

 GDP growth is forecasted to continue

shrinking to 2.4 %.

Source:
https://www.ceicdata.com/en/indicator/pa
kistan/real-gdp-growth
GDP Rate (%)

https://www.ceicdata.com/en/indicator/pakistan/real-gdp-growth
 2. Unemployment

 The biggest challenge of a recession is a rise in cyclic

unemployment. Because firms produce less, they
demand fever workers leading to rise in
unemployment. This is because:
 Some firms will go bankrupt meaning all workers lose
their jobs.

Year Unemployment Rate

2018 5.79%
2019 6.1%
2020 6.2%

https://www.ceicdata.com/en/indicator/pakistan/unemployment-rate
2. Unemployment

 In
an effort to reduce costs, firms will cut back
on hiring new workers.

 According to the report of IMF, the

unemployment rate in Pakistan is expected to
rise from 6.1 percent to 6.2 percent in 2020.
Unemployment Rate (%)

https://www.ceicdata.com/en/indicator/pakistan/unemployment-rate
3. Falling Real Income and Rise in Poverty
 In a recession, firms will also try to reduce costs by keeping
wages low.
 This was a key feature of the 2008-12 recession, also
aggravated by rising costs of living.
 When children grow up in poverty, they have low earnings,
commit crimes, and have poor health.

Year 2018 2019 2020

Income per $1,565 $1,357 $1630
capita
Poverty line 29.5% 24% _
 4. Less Tax Revenue and Higher Government Borrowing

 Governments will see a fall in tax revenue as a result of a

recession.
 Firmsmake less profit, therefore government receive lower
corporation tax

https://www.ceicdata.com/e
n/indicator/pakistan/tax-
revenue
4. Less Tax Revenue and Higher
Government Borrowing

 Workers
receive lower income, therefore
government receive lower income tax
 Lower house prices, and fewer housing
transaction – lower stamp duty
5. Devaluation of the Exchange Rate

 Currencies tend to devalue in a recession because, in a

recession, people expect lower interest rates and so there is
less demand for the currency.
 However, if there is a global recession and all countries are
affected this may not occur.
6. Budget Deficit 7. Falling Assets and Share
Prices
Falling tax revenues Less demand for buying
Rising welfare payments fixed assets
(automatic fiscal stabilizers) Lower profits lead to lower
Pursue expansionary fiscal levels of share prices.
policy to stimulate Dividends may also slump
economic activity. Investors who hold the stock
may sell.
8. Cuts to Quality of Goods 9. Rise in Protectionism
and Services

 Bad quality and reliability of  Raising import duties

the products  Decline in trade
 Consumer confidence
declines
 Consumer spending
drops
10. Lower Inflation Rate
 Fall in aggregate demand
 Lower economic growth, puts
downward pressure on prices.
 Selling at a discount to sell
unsold goods.
 lower inflation rate.
11. Fall in Interest Rates
 Lower interest rates, should help
the economy from recession.
 reduce the cost of borrowing
 encourage investment and
consumer spending.
12. Creative Destruction and New Firms

 Some economists are more positive about recessions

suggesting that a recession can force inefficient firms out of
business
 Enable more innovative and efficient firms to come to the
fore.
 However, good firms can go out of business in a recession
due to temporary factors rather than long-term lack of
competitiveness.
Sughra Azeem
Roll # 16

Economic Survey Of Pakistan

Major sectors Of Pakistan
Industries under recession in
Pakistan
Agricultural sector
 Backbone of Pakistan’s economy
 it merely contributed 19 percent to GDP and couldn’t
fulfill its target.
 Production is only 0.8 percent against the target of 3.8
percent
 Climate change and low water availability were also the
main causes behind agriculture low support.

Source:
https://dailytimes.com.pk/436036/ag
riculture-sector-downturn
 Manufacturing

 Manufacturing in Pak­istan is in recession.

 Large-scale manufacturing (LSM) posted a negative
growth of 3.6 per cent in the last fiscal year for the first
time in 10 years.
 Contraction in LSM growth include
 automobiles
 iron and steel products
 coke and petroleum products
 pharmaceuticals and food and beverages sectors.

Source:
https://www.dawn.com/
news/1501623
 Auto industry

• Due to the ailing auto

industry, Toyota Indus Motors and
Honda Atlas will observe non-
production days (NPDs) in the month
of October 2019.

• Continuous decline as sales dropped

by around 39% in the first quarter of
the fiscal year 2019-20.

Source:
https://www.researchsnipers.com/toyot
a-and-honda-to-halt-production-in-octob
er/
 Services
 Services sector was affected by the decline in
Commodity Producing Sector and registered a less than
expected growth at 4.7 percent.
 Private services such as
 computer related activities,
 event management,
 education,
 health & social work,
has contributed positive growth of 7.05 percent.

Source: Economic survey of

Pakistan 2018-2019
 Current economic situation of Pakistan

• Economic situation going

from bad to worse
Economic indicators in 2018
GDP growth was recorded at
5.8 percent in 2018.
Fiscal deficit was Rs2.2 trillion
Total debt and liabilities on the Now gone up to Rs 40 trillion.
end of June 2018 was Rs30
trillion
Inflation was at a record low at
3.9 percent in 2018.
Current account deficit was
$19,897 million (6.3 percent of
GDP) during 2018 fiscal year.
Current situation
2019
Growth rate for 2019 is
expected to be 3 percent or
even less.
- 
increased to Rs3.4 trillion at the
end of June 2019
Last inflation figure reported by
the present government is 10.3
percent.
It’s now $13,508 million (4.8
percent of GDP) in 2019.
Source:
https://www.thenews.com.pk/print/52
1125-economic-situation
Farwa Jabeen

How To Recover From Recession

Ways to overcome
Recession
Steps needed to be taken by
government

 Decrease inflation rate

 Discourage borrowings if
inflation is ruling high
 Encourageimports of high
priced commodities
Steps needed to be taken by
government

 Encourage savings
 Cut taxes
 Reduce government
expenditure and focus on
infrastructure development
 Encourage exports
Steps needed to be taken by
government

Reduce interest rate

Encourage Foreign
direct investment
Ensure Peaceful
atmosphere conducive
to business
Steps needed to taken by
Public

 Work more
 Pay your debts first
 Concentrate on
saving
 Pay taxes promptly
References

 Bernanke, Ben. 2010. Causes of the Recent Financial and Economic

Crisis. Washington DC:
 Federal Reserve Board.
 Christie, Les. 2010. Record 3 Million Households Hit with
Foreclosures in 2009.
 New York: CNN. Danziger, Sheldon. 2013.
 Evaluating the Effects of the Great Recession. Sage: The American
Academy of Political and
 Social Science.
 Goldman, David. 2009. Worst Year for Jobs since ’45. New York:
CNN. Goodwin, Neva et al.
 2009.