Description
Of these 11 recessions there have been two major recessions excluding the current crisis. The project attempts to examine the current recession in detail and recessions of the previous three decades in brief. The project gives a brief overview of the other post-war recessions. It outlines the fiscal and monetary policy response to current recession and its future effects on various sectors in India. It also looks at theories of why recessions occur. At the end of the project we have tried to estimate the next recession and predicted it to happen in 2016.
?
Recession is when there is a decline in GDP (Gross Domestic Product) for two or more quarters in a row. Depression, by contrast, is essentially a recession that lasts longer and has a larger downturn in business activity. In a depression, real GDP declines in excess of 10%.
?
Difference by Graph
•The graph shows a path of
economic activity through time.
• The period from a to b is the period
of recession. At time a the economic activity is peaking, and there is a trough at time b.
• After b the economy is in a
recovery or expansion stage. Which period is best called a depression is less clear since one must first decide which level provides the measure of normalcy.
•One could consider the period
from a to c the depression because after c the economy is above its previous high point, but there are other options that make as much sense
?
12 10 8 6 4
GDP GROWTH RATE OF INDIA
IND 2 0 -2
-4
-6
1962
1965
• War with China
• War with Pakistan
1966
• Currency devaluation(Withdrawal of foreign aid)
• War with Pakistan • Flood of refugees from East Pakistan • World wide oil crisis • Hike in oil prices • Agricultural output fell by 13% because of bad monsoon • Spike in price of oil • 18% Rupee devaluation(withdrawal of 1.3 bn USD NRI funds
1971
1973
1979
1991
REASONS
Oil crisis
AMERICA
OIL RECESSIONS COMMON IN ALL THE ECONOMIES(1973,19 79,1991) MANY RECESSIONS BECAUSE OF TIGHT MONETARY POLICIES BY THE GOVERNMENT(1957, 80)
INDIA
OIL RECESSIONS COMMON IN ALL THE ECONOMIES(1973,19 79,1991) MANY RECESSIONS BECAUSE OF AGRICULTURAL HIT, FLOODS(1979)
CHINA
OIL RECESSIONS COMMON IN ALL THE ECONOMIES(1973,19 79,1991) MANY RECESSIONS BECAUSE OF STRUCTURAL CHANGES IN ECONOMY (1958), EARTHQUAKES(1976 ) AND REVOLUTIONS(1967) RECESSION BECAUSE OF POLITICAL UNREST(1976,89)
KOREA
OIL RECESSIONS COMMON IN ALL THE ECONOMIES(1973,19 79,1991) MANY RECESSIONS BECAUSE OF FINANCIAL WEAKNESS IN THE ECONOMY(1998)
Economic reasons
Political reasons
RECESSION BECAUSE OF GULF WAR(1990) , KOREAN WAR(1953), WORLD WAR II(1945)
RECESSION BECAUSE OF WAR WITH PAKISTAN (1965,71)AND CHINA(1962)
RECESSION BECAUSE OF ASSASINATION OF PRESIDENT PARK(1979)
INDIAN RECESSION
AFRICAN RECESSION
War with neighboring countries (1962, 1965, 1971) ? Oil Price hikes (1973,1975,1991) ? Devaluation of currency(1966,1991)
?
Political Unrest ? Devaluation of currency ? Decrease in harvest (19831988) ? Apartheid and Racial discrimination
?
? ? ? ? ?
Africa is one of the most unrest continents in the world With the Apartheid and the racial discrimination, the African supply was paid less importance Due to slavery for long years, people are not well educated Lack of infrastructure is a cause These nations are dependent on the external economies for survival. Hence a disturbance in the American economy causes these economies to go into recession
? ?
?
?
The African countries do not have access to technology. Dependent on agriculture, hence less harvests lead the countries into recession Political unrest in these countries is the prime reason for these countries’ inability to attract foreign investment However due to the efforts of the UN, part of Africa is able to come out of the backwardness
KOREA
20
15
10
5
KOREA
0 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
-5
-10
1979
• The main tool for promotion for exports was credit from government owned banks, funded by external bank which resulted in rapid rise in foreign debt
1979
• Rapid monetary expansion and increased budget deficits, • investments were made without sufficient analysis of their viability and impact on the overall economy
1979
• Many overlapping investments, the focus on strategic industries resulted in enormous economic inefficiency, the socialization of bankruptcy risk, combined with the low interest rate ceilings, contributed to moral hazard in the banking and corporate sectors
1979
• Middle East construction boom • The second oil price crisis; a bad agricultural harvest
1979
• Domestic political crisis with the assassination of President Park in October 1979, the • First negative rate of GDP growth • Growth slowdown in export values
1998
• Financial weaknesses in the heavily indebted and weakly profitable corporate sector • Unprecedented accumulation of short term debt • Poor accounting standards and lack of transparency and underdeveloped capital markets
1998
2008
• Foreign exchange reserves diminished • Repayments failed
• US Bubble burst(weakening exports)
• So-called "Great Leap Forward" devastated agriculture: result was falling GDP in 1960-62. 1958-59
• Production undermined by the so-called "Great Proletarian Cultural Revolution", that was initiated by Mao in mid-1966 and effectively ended by People's Liberation Army intervention in 1967-68 1968. • Widespread earthquakes, including the worst ever at Tangshan, hit industrial centres, while agricultural output was hit by drought; policy paralysis resulted from the anti-Deng campaign, followed by Mao's death and the arrest of the Gang of Four. GDP fell.
1976
• Growth slowed after the government braked the overheating economy following an aborted effort at wholesale price reform in 1988 which resulted in panic buying. Price stability was 1989-91 achieved by cancelling large fixed investment projects, slowing domestic demand. Foreign investment fell off after the Beijing Massacre of June 1989.
• The global economic crisis began to reduce China's growth rate.
2008
United Kingdom GBR
8 10
Italy ITA
6
8
6 4 4 2 United Kingdom GBR 2 0 1950 Italy ITA
1960
1970
1980
1990
2000
2010
0 1950
1960
1970
1980
1990
2000
2010
-2
-2
-4
-4
France FRA
8 7 6 5 4 3 2 1 0 1955 -1 -2 France FRA
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
1990
• Inflation 9% for the year • MO growth fell to 4.9% • Oil price fell to $15 a barrel • 44 months of successive falls unemployment started to rise but still lower (France 8.9%, Italy 9.6%);
1991-92
• Still Recession - Growth for the year - 2% • Interest rates progressively headed down from 14% in January to 10.5% in September • Inflation is coming down - 4.6%! Businesses collapsed at a rate of about 1,200 per week. • Growth in Europe was slowing rapidly, though UK still beat them all
1993-94
• Recovery - GDP growth at 1.75% for the year. Investment still very low at 15.2% of GDP (public and private investment). • Growth is healthy at 4% Inflation remains low at just over 2%. • Interest rates rose a little to 6¼% by the end of the year.
United States USA
8 8
Canada
6
6
4
4
2
United States USA 2
Canada CAN
0 1950
1960
1970
1980
1990
2000
2010
0 1950
1960
1970
1980
1990
2000
2010
-2
-2
-4
-4
1980
• The primary cause of the recession was a contractionary monetary policy established by the Federal Reserve System to control high inflation. • Unemployment high • Inflation 13.5%
1981
• On Black Monday of October 1987, a stock collapse of unprecedented size lopped twenty-five percent off the Dow Jones Industrial Average.
>1981
• The North American economy was in recession continuously for years after 1987, with only brief periods of revival.
1990
• The first burst of the recession was short-lived, as fervent pre-election activity by the governments of the United States and Canada created what many economists at the time saw as an economic miracle: a growing consumer confidence and increased consumer spending almost single-handedly lifted the North American economy out of recession. • Economic malaise had returned with the beginning of the Gulf War and the resulting 1990 spike in the price of oil, which increased inflation .
1991
• Collapse of Soviet Union in 1991 led to 70% drop in trade with Russia • authorities tightened bank supervision and prudential regulation • Number of companies went down by 15%, real GDP contracted about 14% and unemployment rose from 3% to nearly 20% in four years
8 7 6 5 4 3
2
1
0 1955
-1 -2
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
South Africa
10
8
6
4 South Africa 2
0 1955 -2
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
-4
The longest in South Africa's history, was due partly to a considerable decline in investment by parastatals in 1985 and a lack of consumer and business confidence. ? For 30 years, Gross Domestic Product (GDP) growth has been declining; unemployment has increased dramatically; and inequality between blacks and whites (employment, income, education and access to other public services) is dauntingly wide. ? With population growing at about 2.6 percent per year, per-capita GDP growth has been negative since 1982.
?
?
?
? ?
?
Both investment and growth in the capital stock declined during the 1980s . This was accompanied by a substantial increase in the capital intensity of the economy which further hampered employment growth. There was a deterioration in the allocation of capital stock. Investment was increasingly channeled towards activities with lower-than-average capital productivity such as in the public sector. Inadequate acquisition of skills within the workforce . This lowered the returns to investment and slowed productivity growth. A probable decline in work input among the unskilled associated with a deteriorating home environment. Rising wages and industrial unrest since the early 1980s which further dampened employment growth.
25
20
15
10
5
0 1955 -5
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
-10
-15
?
?
Mugabe's Zimbabwe had seen a 10% drop in GDP in 2001, mostly due to failing export production as a result of the political unrest, and due to what in practice may be called international sanctions against the regime, almost totally depriving the country of foreign investments. Due to the disruption in the agricultural sector only about 220,000 tons of maize has been produced, in comparison with the normal yield of 850,000 tons. Industrial production is decimated.
? ?
- In a short period in Zimbabwe, the industrial capacity has been destroyed - Due to imperilled democracy in Zimbabwe, investments suffered. Democratising Mozambique, on the other hand, enjoyed an investment increase of 15%.
THANK YOU
doc_256725423.pptx
Of these 11 recessions there have been two major recessions excluding the current crisis. The project attempts to examine the current recession in detail and recessions of the previous three decades in brief. The project gives a brief overview of the other post-war recessions. It outlines the fiscal and monetary policy response to current recession and its future effects on various sectors in India. It also looks at theories of why recessions occur. At the end of the project we have tried to estimate the next recession and predicted it to happen in 2016.
?
Recession is when there is a decline in GDP (Gross Domestic Product) for two or more quarters in a row. Depression, by contrast, is essentially a recession that lasts longer and has a larger downturn in business activity. In a depression, real GDP declines in excess of 10%.
?
Difference by Graph
•The graph shows a path of
economic activity through time.
• The period from a to b is the period
of recession. At time a the economic activity is peaking, and there is a trough at time b.
• After b the economy is in a
recovery or expansion stage. Which period is best called a depression is less clear since one must first decide which level provides the measure of normalcy.
•One could consider the period
from a to c the depression because after c the economy is above its previous high point, but there are other options that make as much sense
?
12 10 8 6 4
GDP GROWTH RATE OF INDIA
IND 2 0 -2
-4
-6
1962
1965
• War with China
• War with Pakistan
1966
• Currency devaluation(Withdrawal of foreign aid)
• War with Pakistan • Flood of refugees from East Pakistan • World wide oil crisis • Hike in oil prices • Agricultural output fell by 13% because of bad monsoon • Spike in price of oil • 18% Rupee devaluation(withdrawal of 1.3 bn USD NRI funds
1971
1973
1979
1991
REASONS
Oil crisis
AMERICA
OIL RECESSIONS COMMON IN ALL THE ECONOMIES(1973,19 79,1991) MANY RECESSIONS BECAUSE OF TIGHT MONETARY POLICIES BY THE GOVERNMENT(1957, 80)
INDIA
OIL RECESSIONS COMMON IN ALL THE ECONOMIES(1973,19 79,1991) MANY RECESSIONS BECAUSE OF AGRICULTURAL HIT, FLOODS(1979)
CHINA
OIL RECESSIONS COMMON IN ALL THE ECONOMIES(1973,19 79,1991) MANY RECESSIONS BECAUSE OF STRUCTURAL CHANGES IN ECONOMY (1958), EARTHQUAKES(1976 ) AND REVOLUTIONS(1967) RECESSION BECAUSE OF POLITICAL UNREST(1976,89)
KOREA
OIL RECESSIONS COMMON IN ALL THE ECONOMIES(1973,19 79,1991) MANY RECESSIONS BECAUSE OF FINANCIAL WEAKNESS IN THE ECONOMY(1998)
Economic reasons
Political reasons
RECESSION BECAUSE OF GULF WAR(1990) , KOREAN WAR(1953), WORLD WAR II(1945)
RECESSION BECAUSE OF WAR WITH PAKISTAN (1965,71)AND CHINA(1962)
RECESSION BECAUSE OF ASSASINATION OF PRESIDENT PARK(1979)
INDIAN RECESSION
AFRICAN RECESSION
War with neighboring countries (1962, 1965, 1971) ? Oil Price hikes (1973,1975,1991) ? Devaluation of currency(1966,1991)
?
Political Unrest ? Devaluation of currency ? Decrease in harvest (19831988) ? Apartheid and Racial discrimination
?
? ? ? ? ?
Africa is one of the most unrest continents in the world With the Apartheid and the racial discrimination, the African supply was paid less importance Due to slavery for long years, people are not well educated Lack of infrastructure is a cause These nations are dependent on the external economies for survival. Hence a disturbance in the American economy causes these economies to go into recession
? ?
?
?
The African countries do not have access to technology. Dependent on agriculture, hence less harvests lead the countries into recession Political unrest in these countries is the prime reason for these countries’ inability to attract foreign investment However due to the efforts of the UN, part of Africa is able to come out of the backwardness
KOREA
20
15
10
5
KOREA
0 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
-5
-10
1979
• The main tool for promotion for exports was credit from government owned banks, funded by external bank which resulted in rapid rise in foreign debt
1979
• Rapid monetary expansion and increased budget deficits, • investments were made without sufficient analysis of their viability and impact on the overall economy
1979
• Many overlapping investments, the focus on strategic industries resulted in enormous economic inefficiency, the socialization of bankruptcy risk, combined with the low interest rate ceilings, contributed to moral hazard in the banking and corporate sectors
1979
• Middle East construction boom • The second oil price crisis; a bad agricultural harvest
1979
• Domestic political crisis with the assassination of President Park in October 1979, the • First negative rate of GDP growth • Growth slowdown in export values
1998
• Financial weaknesses in the heavily indebted and weakly profitable corporate sector • Unprecedented accumulation of short term debt • Poor accounting standards and lack of transparency and underdeveloped capital markets
1998
2008
• Foreign exchange reserves diminished • Repayments failed
• US Bubble burst(weakening exports)
• So-called "Great Leap Forward" devastated agriculture: result was falling GDP in 1960-62. 1958-59
• Production undermined by the so-called "Great Proletarian Cultural Revolution", that was initiated by Mao in mid-1966 and effectively ended by People's Liberation Army intervention in 1967-68 1968. • Widespread earthquakes, including the worst ever at Tangshan, hit industrial centres, while agricultural output was hit by drought; policy paralysis resulted from the anti-Deng campaign, followed by Mao's death and the arrest of the Gang of Four. GDP fell.
1976
• Growth slowed after the government braked the overheating economy following an aborted effort at wholesale price reform in 1988 which resulted in panic buying. Price stability was 1989-91 achieved by cancelling large fixed investment projects, slowing domestic demand. Foreign investment fell off after the Beijing Massacre of June 1989.
• The global economic crisis began to reduce China's growth rate.
2008
United Kingdom GBR
8 10
Italy ITA
6
8
6 4 4 2 United Kingdom GBR 2 0 1950 Italy ITA
1960
1970
1980
1990
2000
2010
0 1950
1960
1970
1980
1990
2000
2010
-2
-2
-4
-4
France FRA
8 7 6 5 4 3 2 1 0 1955 -1 -2 France FRA
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
1990
• Inflation 9% for the year • MO growth fell to 4.9% • Oil price fell to $15 a barrel • 44 months of successive falls unemployment started to rise but still lower (France 8.9%, Italy 9.6%);
1991-92
• Still Recession - Growth for the year - 2% • Interest rates progressively headed down from 14% in January to 10.5% in September • Inflation is coming down - 4.6%! Businesses collapsed at a rate of about 1,200 per week. • Growth in Europe was slowing rapidly, though UK still beat them all
1993-94
• Recovery - GDP growth at 1.75% for the year. Investment still very low at 15.2% of GDP (public and private investment). • Growth is healthy at 4% Inflation remains low at just over 2%. • Interest rates rose a little to 6¼% by the end of the year.
United States USA
8 8
Canada
6
6
4
4
2
United States USA 2
Canada CAN
0 1950
1960
1970
1980
1990
2000
2010
0 1950
1960
1970
1980
1990
2000
2010
-2
-2
-4
-4
1980
• The primary cause of the recession was a contractionary monetary policy established by the Federal Reserve System to control high inflation. • Unemployment high • Inflation 13.5%
1981
• On Black Monday of October 1987, a stock collapse of unprecedented size lopped twenty-five percent off the Dow Jones Industrial Average.
>1981
• The North American economy was in recession continuously for years after 1987, with only brief periods of revival.
1990
• The first burst of the recession was short-lived, as fervent pre-election activity by the governments of the United States and Canada created what many economists at the time saw as an economic miracle: a growing consumer confidence and increased consumer spending almost single-handedly lifted the North American economy out of recession. • Economic malaise had returned with the beginning of the Gulf War and the resulting 1990 spike in the price of oil, which increased inflation .
1991
• Collapse of Soviet Union in 1991 led to 70% drop in trade with Russia • authorities tightened bank supervision and prudential regulation • Number of companies went down by 15%, real GDP contracted about 14% and unemployment rose from 3% to nearly 20% in four years
8 7 6 5 4 3
2
1
0 1955
-1 -2
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
South Africa
10
8
6
4 South Africa 2
0 1955 -2
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
-4
The longest in South Africa's history, was due partly to a considerable decline in investment by parastatals in 1985 and a lack of consumer and business confidence. ? For 30 years, Gross Domestic Product (GDP) growth has been declining; unemployment has increased dramatically; and inequality between blacks and whites (employment, income, education and access to other public services) is dauntingly wide. ? With population growing at about 2.6 percent per year, per-capita GDP growth has been negative since 1982.
?
?
?
? ?
?
Both investment and growth in the capital stock declined during the 1980s . This was accompanied by a substantial increase in the capital intensity of the economy which further hampered employment growth. There was a deterioration in the allocation of capital stock. Investment was increasingly channeled towards activities with lower-than-average capital productivity such as in the public sector. Inadequate acquisition of skills within the workforce . This lowered the returns to investment and slowed productivity growth. A probable decline in work input among the unskilled associated with a deteriorating home environment. Rising wages and industrial unrest since the early 1980s which further dampened employment growth.
25
20
15
10
5
0 1955 -5
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
-10
-15
?
?
Mugabe's Zimbabwe had seen a 10% drop in GDP in 2001, mostly due to failing export production as a result of the political unrest, and due to what in practice may be called international sanctions against the regime, almost totally depriving the country of foreign investments. Due to the disruption in the agricultural sector only about 220,000 tons of maize has been produced, in comparison with the normal yield of 850,000 tons. Industrial production is decimated.
? ?
- In a short period in Zimbabwe, the industrial capacity has been destroyed - Due to imperilled democracy in Zimbabwe, investments suffered. Democratising Mozambique, on the other hand, enjoyed an investment increase of 15%.
THANK YOU
doc_256725423.pptx