Recession 2009


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A study of recessions over the years and what the current recession holds

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  • Recession 2009

    1. 1. Recession 2009 An study of recessions over the years and what the current recession holds Sreyans Jain - Operations excellence & Transformation expert in the BPO space
    2. 2. Recession– what is it? <ul><li>Period of slow or negative economic growth determined by: </li></ul><ul><ul><li>Slowdown in industrial production </li></ul></ul><ul><ul><li>Falling oil prices (with reduced demand) </li></ul></ul><ul><ul><li>Reducing demand for goods and services </li></ul></ul><ul><ul><li>Higher rate of savings than investments </li></ul></ul><ul><li>Two consecutive quarters of falling GDP </li></ul><ul><ul><li>Falling imports and exports </li></ul></ul><ul><ul><li>Reduced capital flows </li></ul></ul><ul><li>Rising unemployment </li></ul><ul><ul><li>Increasing layoffs </li></ul></ul><ul><ul><li>Dearth of new jobs </li></ul></ul>
    3. 3. Leading to a recession 0 1 2 3 Recession Years
    4. 4. Recessions over the years 1975 Declining growth in industrialized economies 1982 Declining growth in US and Latin America 1991 Busting of the technology bubble 2009 US credit crisis The recent recessions
    5. 5. Comparing recessions <ul><li>The 1991 recession lasted until 1993, using market weights; all other recessions lasted one year. </li></ul><ul><li>In 2001, conversely, many advanced economies had mild recessions, but growth in India and China remained robust. </li></ul><ul><li>Sharper declines happened across almost all indicators in 1975 and 1982 than in 1991 </li></ul><ul><li>World trade grew in 1991 despite recession </li></ul><ul><li>Unemployment is expected to increase by 2.5 percentage points, higher than any recessions </li></ul><ul><li>In 2009, almost all advanced economies are expected to be in recession </li></ul><ul><li>2009 will be the most severe global recession in the post world war period </li></ul>
    6. 6. The Recession cycle -2009
    7. 7. The declining ‘US’ importance in recessions <ul><li>Economic growth of US and the world are not synchronous today </li></ul><ul><li>In the last six years, US has contributed to 10% of world growth whereas China has contributed 35%. </li></ul><ul><li>Europe, Canada and China- the biggest trading partners of the US will be affected </li></ul><ul><li>Declining share of US economy in the world GDP also differentiates this recession from others </li></ul><ul><li>The US share of world economy has dropped from 28% in the 1950s to 19% in 2008 </li></ul>
    8. 8. But ….US still impacts <ul><li>Crisis generated in advanced market economies, predominantly in the US has spread to emerging economies </li></ul><ul><ul><li>International trade with the US is impacted </li></ul></ul><ul><li>Increase in US unemployment rate </li></ul><ul><ul><li>5.7 million jobs lost since December 2007 </li></ul></ul><ul><ul><li>65,400 jobs lost in a single week – last week of Jan 2009 </li></ul></ul><ul><ul><li>Unemployment rate increased to 9% in April 2009 </li></ul></ul><ul><li>Vanishing household wealth </li></ul><ul><ul><li>US suffered losses on household wealth to the tune of $11 trillion (almost equivalent to the GDP) in 2008 </li></ul></ul><ul><li>Pressure continues on Financial institutions: </li></ul><ul><ul><li>Asset values continue to decline </li></ul></ul><ul><ul><li>Lending to households and corporations is being discouraged </li></ul></ul><ul><ul><li>Credit card delinquencies have gone up </li></ul></ul><ul><ul><li>Largest US bank Citigroup incurs $45billion losses/write offs in 2007 </li></ul></ul>
    9. 9. Recent trends and projections on key indicators Projections <ul><li>India will grow at 4.5% in 2009 and 5.6% in 2010 </li></ul><ul><li>Oil prices hit $38 per barrel in 2008 expected to move above $110 in 2010 </li></ul><ul><li>Trade will be effected across all economies – emerging & advanced </li></ul>
    10. 10. Are we leading to the Great Depression of 1930? Better political scenario, stronger macroeconomic policies and the resurgence of emerging and developing nations put us at a better stead to fight the current recession The Great Depression -1930 Recession - 2009 Epicenters around the US crisis Epicenters around the US crisis Credit boom of 1920’s was largely US specific Credit boom of 2004-2007 spread across advanced & emerging economies Downward pressure on prices leading to deflation In mid-2008 inflation was prevalent in most economies providing initial cushion Retail depositors withdrew their funds out of fear Bank runs by retail depositors prevented due to the reassurances provided by deposit insurance Counter policy responses were virtually absent Strong and swift recourse to macroeconomic policies Little international cooperation due to political tensions among major countries Much organized international trade with countries getting together to counter recession
    11. 11. The road ahead: dark clouds and silver linings India, China & Russia accounted for 50% of global economic growth India & China will lead the revival with growth in excess of 5% in recession Economies – advanced and emerging will see negative growth in 2009 Year Highs/Lows 2007 China registered 13% growth with India & Russia at 9.3% and 8.1% respectively 2009 Japan is projected to register negative growth of -6.2%, US at -2.8%, UK at -4.1% bringing down global growth rates by -1.3% 2014 China and India are expected to be back on track with 10% and 8% growth rates respectively
    12. 12. Success stories during Recession SUCCESS STORY – 1 A success during the Great Depression is the motion picture industry . People were so distressed and fearful about their economic condition they needed emotional relief and a means to escape. The movies provided that relief, no matter how brief and temporary. The movie industry identified the need and opportunity and filled it at a price people were able to pay. Opportunity always exists; it may be harder to recognize in tough times because it takes a different form. The movies of the Great Depression normally had common themes. Most of them provided an escape for viewers. These movies, such as The Wizard of Oz (1939), Snow White and the Seven Dwarfs (1937), and Gone with the Wind (1939), allowed people to think about faraway places instead of household chores
    13. 13. Success stories during Recession SUCCESS STORY – 2 In 1927, a young married couple started a hot dog and root beer stand called ‘The Hot Shoppe’. They had many years of success but they saw greater opportunity along the new highways being built across America. They opened a motor lodge for travellers to sleep overnight. That venture helped J. Willard and Alice Marriott build one of the greatest hotel chains in the United States. In 2007, ‘ The Marriott Corporation ’ was handling over 50,000 reservations a day! Sometimes taking new roads leads you in a completely different direction than you had originally intended, with favourable consequences.
    14. 14. Direct your questions to me at [email_address] Thanks