You are on page 1of 30

Recession

Presented By

Amol K
Nimsarkar
PGDIM, MINDS
Bangalore
Before understanding
“Recession”,
we need to understand the
market
Economy
1] TWO and Market
STAGES OF MARKET ECONOMY --

2] TWO FACTORS OF MARKET; - DEMAND & SUPPLY


1] TWO STAGES OF MARKET ECONOMY

a)- Growing Market Economy

b)- Declining Market Economy


a)- Growing Market Economy

Starting Point = Willingness to buy


b)- Declining Market Economy
tarting Point = Unwillingness to buy
2] TWO FACTORS OF MARKET; - DEMAND & SUPPLY

oducer wants his demand always to be high


nsumer wants his buying cost always to be low
Actually, Demand is the price at whic
consumer is ready to buy and
producer is ready to sell;
Usually, we think;
Demand = Quantity
But, here Demand = Price;
This is because,
Price decides the Quantity of Sales;
Producer Price
Competitive Price = More Demand;
Consumer Price
In competitive Price = Less Demand
3] What is Recession?

National Bureau of Economic Research


(NBER) is the official agency in charge of
declaring that the economy is in a state of
recession.
Recession is the economy shrinking for two
consecutive quarters (=6 months) with a
decrease in the GDP (Gross Domestic Product)
growth.

GDP = Total
GDP valueVALUE
= MONEY of allOFthe reported
{C + I + G + (Xgoods
– M)} and
services
Consumptions, I = Gross Investments, G = Government Spendin
produced by the people operating
X = Exports, M = Imports in the country
3] What is Recession?
GDP is a good indicator of an economy; Other
indicators could be;
-Unemployment Rate
-Consumption Rate
-Actual Personal Income
-Etc..
A GDP, in simple terms, is used to gauge the
health of an economy then
If GDP is growing, then market is growing due to
increased demand;
Note: If the recession continues for next
quarter,
(>6 months) then we go through
3] What is Recession?

There is a joke that economists quote to


explain the
Difference between “Recession &
Depression” RECESSION

= WHEN YOUR NEIGHBOR LOSES HIS JOB

DEPRESSION

= WHEN YOU LOSE YOUR JOB


4] What is a Business Cycle?

What goes up; Has to Growing economy has


come to
down; come down if the
production rate of
goods & services was
more than the actual
consumption;
5] Why Recession happens?

b)- LOW
a)- OVER
CONFIDENCE
PRODUCTION
LEVEL
5] Why Recession happens?

a)- OVER
PRODUCTION

PSEUDO DEMAND A situation in which


ACTUAL NEED WAS the
NOT THERE; supply exceeds the
WRONG PROJECTIONS
nation’s
COMPANIES
ability to consume
PRODUCED what has
MORE
been produced;
5] Why Recession happens?

b)- LOW b.1] Word of mouth


CONFIDENCE
LEVEL
b.2] Assignable Cause

b.1] Word of mouth

Confidence Level Consumers are fearing that they may


Millions of lose their jobs; So, they have less
sumers and confidence to spend money and buy
ducers after they goods; This will result in reduction
r many job cuts, in demand in the market; Consumers
mand coming down,start saving money instead of spending
money; This is a downward spiral in
mpanies’ bankruptcy,
the economy;
5] Why Recession happens?

b) LOW b.1] Word of mouth


CONFIDENCE
LEVEL
b.2] Assignable Cause

b.1] Word of mouth

Confidence Level Consumers


Producers are fearing
do not stockthat they may
materials, they
Millions of lose theirtheir
jobs;productions,
So, they have less
reduce gets into the
sumers and confidence to spend money and buy
cost reduction activities, worried about
ducers after they goods; This will result
the profitability, etc…in reduction
r many job cuts, in demand in the market; Consumers
mand coming down,start saving money instead of spending
money; This is a downward spiral in
mpanies’ bankruptcy,
the economy;
5] Why Recession happens?
b.2] Assignable Cause
d Incidences Happening;

ample: September 11 Terrorist Attack in US;


International Airport block in Thailand;
Mumbai Attacked in India;
etc…

Series of such incidences


leading into a kind of War

ase see next slides, for details on business impact;


Terrorists’ Attack on 11th September in US

Created fear in people

People cancelled their travel plans

Resulted in low occupancy rates

Airlines & Hotel Industries badly hit

Airline & Hotel Industries offered discounts,


gift coupons, to attract people
But, still, no improvement in occupancy
rate
Airline & Hotel Industries started
CONTINUED
“Cost Reduction” activities
IN NEXT SLIDE
Terrorists’ Attack on 11th September in US

Airline & Hotel Industries started


“Cost Reduction” activities

iii] Salary reduction to


i] Reduce No. of flights ii] Lay off people
“Not laid off people”

Low or No income to They became careful due


In flight meals reduced
spend and buy goods to the fear of loss of job

Meals supplying company Demand for other goods Started saving money
got the hit come down instead of spending

Catering company now, Demand for other goods


lays off people come down
o, you can see how the hit on Airline and Hotel
ndustries can affect “Un-related” industrie
n the end.

ne industry can hit many other industries when the


onfidence level of millions of consumers & producer
rastically comes down.
6] How to know recession?

Indicators to say a nation is in recession;

- People buying less stuff


- Decrease in factory production
- Growing unemployment
- Slump in personal income
- An unhealthy stock market
7] How to come out of recession?

unhealthy for any nation to be in Recession.


Government will take certain countermeasures
liminate or reduce the Effect of recession for turnaro
Important Point:
Today, it is a market Economy

Producers; Consumers;
Can produce and Can decide to
sell at their prices buy or not;

Both Producers and Consumers are free to act; Not a forced action
7] How to come out of recession?
, Government does not have direct control on Producers
mers’ behavior; But, they can influence millions of Producer
mers with Government’s policies.

Government has 2 plans

Fiscal Policies Monetary Policies


(By Govt.) (By RBI)

Government influences the RBI manipulates


economy by changing how the available supply of
it (Government) spends money in the country
and collects money
7] How to come out of recession?

FiscalGovernment influences the economy by changin


how it (Government) spends and collects money
Policies
1] Tax cuts for More money
businesses or available for
for individuals spending

2] More Spending Individuals get Demand picks


by Govt. to salary and spend up; Market
create jobs money can recover;
3] Automatic
Some income to
fiscal policy;
unemployed
Unemployment
people to spend
Insurance
7] How to come out of recession?

Monetary Government manipulates the available supply


Policiesof money in the country
More money
1] Reduce reserve
available for bank
ratio
to give loans

What is Reserve Ratio?

Each bank has to keep a high % of their assets in


RBI (Reserve Bank of India). These assets do not
earn any interest to banks. This money kept in
RBI is called “Reserves”; RBI sets certain ratio
of this reserves and it is called “Reserve Ratio”
7] How to come out of recession?

Monetary Government manipulates the available supply


Policiesof money in the country
More money
1] Reduce reserve
available for bank
ratio
to give loans

2] Lower the Individuals take


interest rates more loan
7] How to come out of recession?

Monetary Government manipulates the available supply


Policiesof money in the country
More money
1] Reduce reserve
available for bank
ratio
to give loans

2] Lower the Individuals take


Demand picks
interest rates more loan up; Market
can recover;
3] Use its own It becomes an
reserved income to Govt.
money to buy to inject money
Govt. bonds into the market
8] Think !!!!

RBI’s Power or Government’s Power is double-edged


sword; Sometimes, their policies to recover from recession
can be counter-productive and it may further worsen the
situation;

If we advise our people to save money, then, the multiplication effect is that
the demand will not pickup and recession will continue; Very peculiar!! But, I
am not misguiding you; Just think from a macro level, if everybody in the
country stops spending, what will happen?

Nation’s recession is controlled by the actions of


everybody living
in that country;
8] WOW!!!!!!!!

Most of the developing Currently, GDP Growth


Economies like China, Slow Down Rate Down; But,
India; Stage; Not yet Still expected to be
in Recession Around 6% in India

Most of the developed


Economies like US, Currently, GDP Growth
Japan, Germany, etc in Recession Rate Negative;
HOPING THIS TIME
RECESSION VANISHES
SOON SO THAT
INDIA GETS BACK
TO ITS STRONGER
GDP GROWTH RATE
OF 8% TO 10%
(THOUGH THE EXPERSTS
SAY IT WILL FINISH TILL
Q3 OF 2009)
References:
 Google search engine.
 McKinsey reports.

 World economic forum

 World social forum

 Harvard business review

 Accountancy magazine

 The Economists

Amol K Nimsarkar
PGDIM, MINDS
Bangalore

29

You might also like