Everyone is talking about the current market recession, as it hits every home worldwide. We could always view headlines and financial status reports on the newspapers and television news channels, and form our own opinions, based on what the so called experts say. Every economy goes through periods of fast growth, slow growth and no growth at all, sometimes even going through periods of negative growth. Technically, a market recession is defined by decline of a nation's Gross Domestic Product or GDP for two consecutive quarters. However, in order to lessen its negative impacts, we must dig deeper into its roots and know its causes.
Let us first understand the words GDP that define market recession. The Gross Domestic Product is a measure of a nation's annual economic output, as a function of the value of its final goods and services. These goods are evaluated based on their market value. In an economy, GDP could be seen in real GDP, real income, employment, industrial production, and wholesale-retail sales in an economy. The National Bureau of Economic Research stated that since 1945 the world has experienced ten recessions with an average duration ten months and an average expansion for fifty-seven months.
This leads to a business cycle of about five years and seven months wherein the shortest market recession recorded was six months from January to July 1980 while the longest market recession was sixteen months from November 1973 to March 1975 and July 1981 to November 1982. Whereas, the shortest expansion period was noted since the mid-1940s to 2007 for only twenty-four months was on April 1958 to April 1960, while the longest expansion period that set a record of 120 consecutive growth months was from March 1991 to March 2001.
The exact causes of recessions are still debatable and unclear; however, the five most popular reasons that are attributed to its existence are - decreasing dollar value, increase in oil price, increase in inflation rate, housing deflation and the global economy.
The ability to attract foreign investments should be the main concern of every government because it increases the economic confidence of such a nation. Foreign investment however is not the only factor that determines an economy's well being. An increase in the price of energy comes with an increase in the prices of other goods and services as well, which causes a decrease in consumer confidence, and eventually undermines the business environment.
The effect of oil price increases and the decline of the world currencies - primarily the US Dollar- would be an increase in the inflation rate which could lead to higher bankruptcy and unemployment rates. This then results in a situation where most people would then stop buying houses, thus causing the value of houses to drop. That would then reduce the net worth of the great majority of the households in that nation. With the current global economy, one nation affected by market recession tends to affect the global economy because of the inter-related nature of most national economies, mainly as a result of importation and exportation. Therefore, this can set of a chain of reactions, as we have seen recently.
It is important to understand the dynamics of the current market recession, in order to position yourself for the best chance of thriving in this environment.
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