Global economy in recession

What is Recession?

There is no accepted definition of recession. In the language of economics, if the growth of a country's economy continues in two consecutive quarters in a fiscal year, it is called a recession. According to the International Monetary Fund (IMF), when the economic growth in the world is less than 3 percent, the situation is called a global recession. According to them, global recession occurs in cycles of approximately 8-10 years.

Types of Recession

Economists interpret recessions as V-Shape, U-Shape, L-Shape or W-Shape on economic indicator graphs. In the graph of the economy, if the shape of fluctuations of the indicators is V-Shape, it should be understood that the recession is temporary, and if it is U-Shape, the recession is long-lasting. When a recession is over, its index will fluctuate on a graph like W. Again in 1997-1999 Japan's recession is visible as L-Shape in eight out of nine consecutive quarters.

Cause Of Recession

Recessions can occur from sudden economic shocks caused by wars and natural disasters to uncontrolled inflation. Sudden economic shocks have also seen recessions in the past. In the 1970s, OPEC cut off oil supplies to the United States, triggering an economic recession in the United States without warning. Due to the recent coronavirus, the economy has practically come to a standstill all over the world. It is also seen as a sudden economic blow.

Balance Sheet Recession: This type of recession usually occurs when a large number of people have to pay off their debts at the same time as a result of a country's over-indebtedness or the collapse of the financial sector. And if a country has excessive debt that at some point becomes beyond their ability to repay, a recession can still occur.

Hyperinflation: Hyperinflation creates dangerous situations when it runs out of control. In this situation, the central bank increases the interest rate to control the inflation, meanwhile, the high interest rate hinders the economic activities of the country. In the 1970s, such an incident occurred in the United States.

History of Recession

The first recession in modern finance occurred in Europe in the 18th century. Again, the longest recession in the history of the world is in the United States. Its scope was from 1929-1939. In October 1929, the US stock market crashed in just two days. Within days, production in industrial factories collapsed. One million people in the United States became unemployed after just one year. In 1973, the Arab-Israeli war caused an economic depression in the United States. In 1997, the lack of foreign currency caused panic in Asian markets. At this time, foreign investors began to withdraw billions of dollars of investment from Thailand. The financial crisis that started from Thailand quickly spread to the countries of East Asia and South East Asia, and economic recession began in the countries. The main cause of the global economic recession in 2008 was the abnormal growth of the housing sector in the United States, the risky lending of the country's mortgage market and the lax regulation of the financial sector.

The Great Inflation

World War II brought prosperity to the United States. At that time production increased, unemployment decreased, inflation was around 1%. But the situation changed from 1965 onwards. Unemployment and inflation continue to rise. This situation was till 1982. In 1980 the country's inflation rate was around 15%. This period is called the Great Inflation. Meanwhile, stagflation is also experienced. Ronald Reagan became the US President in 1981. He made a famous quote about the inflation of that time. The quote is - 'Inflation is as violent as a robber, as dangerous as an armed robber and as deadly as a murderer.

Actions and Challenges

We should focus on increasing production rather than reducing consumption to avoid the risk of impending recession. At the same time, efforts should be made to increase investment. If the price of fuel oil falls in the global market during the recession, the country's market has to be coordinated with it. Several issues will come as challenges in front of us. These are - export earnings may decrease, prices of imported food products may increase and remittances may decrease.