economic recession presentation

7/30/2019 Economic Recession Presentation

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Presented by:

Ira MishraAnupam Jayaswal


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Business Cycle

The recurring and fluctuating levels ofeconomic activity that an economyexperiences over a long period of time.

Business cycles are widely known to beirregular - varying in frequency,magnitude and duration.


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Stages of Business Cycle

Growth(Expansion): It is a period whenbusiness activity surges and grossdomestic product expands until it reaches apeak

Peak: A peak marks the end of anexpansion and the beginning of arecession

Recession:After operating at maximum

activity, the business goes into therecession phase. This phase witnesses adecrease in total output, employment andtrade.


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Trough: At this stage, output andemployment are at their lowest. This is alsoreferred to as the stage of depression

Recovery: The recovery stage is the rise inoutput, employment and trade after the

depression stages. The employment levelsincrease till maximum employment isreached.


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Stages of Business Cycles


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Economic Recession

The technical definition of an economicrecession is when GDP growth is negativefor two quarters or more.

A recession is usually preceded by severalquarters of slowing but positive growth.

During recession economic growth slows,

businesses stop expanding, employmentfalls, unemployment rises, and housingprices decline.


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Late 2000s Recession:Causes

In order to understand what is nowhappening in the world economy, weneed to go a little back in past and

understand what was happening in thehousing sector of America for past manyyears.

In the US,Housing Sector was booming.

Combination of low interest rates andinflow of foreign funds made it easier forpeople get house loans


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Since it was a good time and property priceswere soaring, the only aim of most lending

institutions and mortgage firms was to giveloans to as many potential customers aspossible.

As a result, many people with low income &bad credit history were given housing loans.

These types of loans were known as sub-prime loans as those were are not part of

prime loan market (as the repaying capacityof the borrowers was doubtful).


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The investment in these loans were greatbecause,the interest we 2%higher than that of

prime loans and the other reason was that ifthe borrower defaulted the lender could sellthe house and recover the amount.

With the stock market booming, many bigfund investors like hedge funds and mutualfunds bought these sub-prime loans from theoriginal lenders ,including European

Investment banks,due to this the sub primeloans diversified into the global market.


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However, as the saying goes, No boom lasts

forever, the housing bubble was to burst

eventually. Overbuilding of houses during the boom

period finally led to a surplus inventory ofhomes, causing home prices to declinebeginning from the summer of 2006.

Due to this house prices started to decline.

As a result,interest rates rose and borowwers

started to default on loans


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But when the house prices declined,theseloans became risky and unprofitable,as

many more loans defaulted.And as the prices decreased the lenders

could not sell the houses and recover theloan amount.

Eventually, there remained no option but towrite off losses on these loans.

The effects of these losses were huge.Global banks and brokerages have had towrite off an estimated $512 billion insubprime losses so far.


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The Citigroup ($55.1 billion) and Merrill Lynch($52.2 billion). A little over half of these

losses, or $260 billion, have been suffered byUS-based firms, $227 billion by Europeanfirms and $24 billion by Asian ones.

The crisis led to The Lehman Brothers file for

bankrupcy. Merrill Lynch has been bought out by Bank of

America.

Since many banks had invested,the globaleconomy suffered huge losses and went intoglobal economic recession.


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Effects of Global Recession

Bankruptcies:As an after effect ofrecession numerous banks went intosolvency due the loan defaults and also

due to the a large amount of sub primeloans.

Stock market Crash:People are

spending less money,companiestherefore, make less money, resulting inlower earnings and share prices.


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Unemployment

Financial Markets:IT industries,real estate

industries,car industry investment bankingand other industries suffered huge lossesdue to the fall in global economy.

Decline in dollar Value:Due to decreasedinvestment in the US markets.

Slowed export and import.


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Recovery from Recession:

Governments policy actions to arrest thesituation included bail out of financialinstitutions, reduction of bank rate andexpansionary fiscal policy aimed at stimulatingeconomic growth.

The various policy actions have helped torestore some confidence especially in theworst hit some confidence especially in theworst hit developed economies.

However the global economic environmentremains highly uncertain and recovery isprojected in 2010 depending on theeffectiveness of the various policy actions.


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economic recession presentation

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