The major reasons for the recession that hit worldwide especially the US and Eurozone. The subprime Crises, US housing Crisis with Facts and Figures and The Fix.

1. DHRUV KHURANA- 416
RADHIKA JAIN -391
CHITRITA ARORA - 489
SALONI BEHL - 386
SUSHANT YADAV - 1017
DHANANJAY -465

2. • Recession – definition
• Navigating through global recession
• Ares affected
• Fallout in the US
• EUROZONE crisis
• Impact on INDIA
• Conclusion
INDEX

3. According to IMF’s definition of a global recession,
which is a decline in annual per capita real world
GDP ( purchasing power parity ) , the recession began
in 2009 ; It began as a national recession in United
states in December 2007, but only met the criteria for
being a global recession in the calendar year 2009.
A significant decline in activity across the economy,
lasting longer than a few months. It is visible in
industrial production, employment, real income and
wholesale-retail trade. The technical indicator of a
recession is two consecutive quarters of negative
economic growth as measured by a country's gross
domestic product (GDP).
WHAT IS RECESSION?

4. • The global financial and economic crisis that began
in 2007 in the US has now led to the first global
recession since world war II .
• There is no consensus on the causes of this once in
a lifetime crisis .
NAVIGATING THROUGH THE GLOBAL RECESSION
FROM TILL TIME SPAN
JULY 1980 NOVEMBER
1982
24 MONTHS
JULY 1990 MARCH 1991 8 MONTHS
MARCH 2001 NOVEMBER
2001
8 MONTHS
DECEMBER
2007
JAN 2010 25 MONTHS

5. • It was a major global recession characterized
by various systematic imbalances and was
sparked by the outbreak of the US subprime
mortgage crisis and financial crisis of 2007-8.
General Causes of recession:
a. War Situations
b. Energy Crises
c. under

6. According to the International monetary fund , The global
economy declined by 1.3% in 2009, in the first global recession
since World War II.

7. AREAS AFFECTED

8. • UNITED STATES OF
AMERICA
• EUROZONE
• INDIA
Areas Covered

9. UNITED STATES OF AMERICA

10. U.S. ECONOMY
0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2004 2005 2006 2007 2008

11. 1 •Failure of Major Banks
2
•Liquidity and Credit Crunch
3
•Subprime Mortgage Crisis
4
•U.S. Housing Crisis
WHY THE CRASH?

12. Liquidity Crunch - A crisis that occurs when
a business experiences a lack of cash
required to grow the business, pay for day-
to-day operations, or meet its debt
obligations when they are due, causing it
to default.
Credit Crunch - a sudden reduction in the
availability of loans (or "credit") or a
sudden increase in the cost of obtaining a
loan from the banks, and interest rates are
high

13. Subprime Mortgage – It’s offered/issued at
a higher interest rate to persons who do not
qualify for prime rate loans. With the
following perks:
•No down payment required
•Credit Rating Ignored
•Credit history Ignored
•No proof of employment required
•No proof of ability to pay mortgage
(income)
SUBPRIME CRISIS

14. U.S. HOUSING CRISIS

15. • Biggest economy
in the world
• Constitutes 27% of
Global GDP
• World’s biggest
debtor country
• Biggest Importer
of Oil 27% in 2007
IMPACT OF U.S.
Australia
2%
Brazil
2%
Canada
3%
China
5%
France
5%
Germany
6%
India
2%
Italy
4%
Japan
9%
Korea
2%
Mexico
2%Russian
Federatio
n
2%
Spain
3%
UK
5%
USA
27%
Rest of
the World
21%
Global GDP

16. 1. Nationalisation of some banks
2. Fiscal Policy
• Tax cuts/rebates
• Establishment of new govt jobs
• Unemployment insurance
3. Monetary Policy
• Reduce the reserve ratio
• Lower the federal funds rate
• Lower the discount rate
• Use its own reserve money to buy government bonds
• Changes in who can borrow
THE FIX

17. “When the United States Sneezes,
the rest of world may well catch a
cold”
-By Rich Miller

18. EUROZONE

19. • The Eurozone crisis is an ongoing crisis
that has been affecting the countries
• It is a combined sovereign debt crisis ,a
banking crisis and a growth and
competitiveness crisis
• It made some countries impossible to
repay or refinance their government debt
without the assistance of third parties
• Banks in the Eurozone were under
capitalized and had faced liquidity
problems
Eurozone Crisis

20. The EUROZONE CRISIS resulted from a combination of
complex factors :
Causes
• Financialization : Process that attempts to reduce
all value that is exchanged with either financial
instruments or derivative of financial instrument .
Financialization had become a major part of
financial sector which had adversely affected the
economy by giving no real benefits to the
investors
• Easy credit during the 2002 – 2008 period that
encouraged high risk borrowing practices .
• Real estate bubbles burst where the real estate
prices declined sharply .

21. • Trade imbalances and budget deficiencies
played a major role in the financial crisis :
Survey undertaken in 2009 found that most firms
in particular, small and medium sized
enterprises and new firms had been affected by
increased costs of trade finance , more
stringent requirements including guarantees
to obtain more trade finance ,higher down
payments , more stringent collateral
requirements and higher interest rates
became a major obstacle for exports.

23. The following highlights the impact of the global recession on GDP
for the Eurozone economies
TABLE 1
DEPTH & DURATION OF THE RECESSION
IN EUROZONE ECONOMIES
GDP Peak
Quarter
GDP Trough
Quarter
Quarters in
Recession1
Cumulative
Decline in GDP2
Ireland Q4 07 Q4 10 12 -14.6%
Finland Q2 08 Q2 09 4 -10.2%
Greece Q3 08 Q4 10 9 -8.9%
Italy Q1 08 Q2 09 5 -7.0%
Germany Q1 08 Q1 09 4 -6.6%
Austria Q2 08 Q2 09 4 -5.4%
Netherlands Q1 08 Q2 09 5 -5.3%
Spain Q1 08 Q4 09 7 -4.9%

24. Table 1 highlights the impact of the global recession on GDP for the
eurozone economies. As you can see, the impact of the slump on the
overall level of output varied considerably across the individual member
countries hitting some nations much harder than others. The length of the
recession also varied significantly and ranged from the relatively short 3
quarters in the case of Belgium to a staggering 12 quarters, or 36 months,
for Ireland.
All three of Europe’s biggest economies entered into recession at the same
time but the slump lasted for four quarters in Germany and France and
five quarters in Italy. In terms of the impact on GDP, the more open
economies of Germany and Italy suffered steeper declines in output (–
6.6% and –7.0% respectively) than France where real GDP fell by 3.9%.
Interestingly, Greece’s economy, after peaking in the third quarter of 2008,
was the last eurozone economy to topple into recession. But, instead of
following the old adage of last in, first out, Greece will likely be the last of
the eurozone countries to climb out of recession. The economy has now
been contracting for over two years and GDP has fallen by 8.9%. Finally,
Spain’s recession persisted for seven quarters during the course of which
GDP declined by 4.9%.

25. There is little question that the recovery remained weak in
most eurozone countries and, as the risks to the outlook
continued to multiply, the ability of policy makers to speed-
up growth was unfortunately virtually non-existent. Indeed,
with a lacklustre recovery, there was a real danger that as the
austerity measured, including tax hikes and sharp cuts to
public spending, start to bite. This will further push down
growth rates.
Moreover, when one adds in the mix of rising interest rates,
volatile oil prices, and an appreciating euro, then it becomes
glaringly clear that any near-term prospect of a resurgence
in growth vanishes. Given this toxic environment, several
of the eurozone economies including Spain, Portugal, and
Italy could find themselves sliding back into recession and
dragging down the region. Not a happy picture.

26. INDIA

27. India escaped the direct adverse impact of the
Great Recession of 2008-09, since its financial
sector, particularly its banking, is very
weakly integrated with global markets and
practically unexposed to mortgage-backed
securities. However, India’s “real economy”
is increasingly integrated into global trade
and capital flows. It thus did suffer “second
round” effects when the financial meltdown
morphed into a worldwide economic
downturn.
IMPACT ON INDIA

28. Why did India suffer so little in the Great Recession that laid low the biggest
economies of the West?
There were many factors that saved the Indian economy
from dire consequences of the global recession. Indian
banks and financial institutions had almost entirely avoided
buying the mortgage-backed securities and credit default
swaps that turned toxic and felled western Financial
institutions. India's merchandise exports were indeed hit by
the Great Recession but Service exports did not fall -
computer software and BPO exports held up well. Foreign
direct investment remained high in 2008-09 despite the
global financial crisis. Financiers reversed Flows into India,
but long-term investors in plant and factories completed
their ongoing projects. Monetary policy was accommodating
in 2008. The RBI lowered interest rates and expanded Credit.
The government cut excise duties to stoke demand. All these
factors cushioned the shock to the economy.

29. Indian exports fell in line with global trade flows. This should
firmly dismiss the decoupling myth for the Indian economy.
Collapsing foreign trade, capital flows, and exchange rate
movements all transmitted negative impacts to the Indian
economy

30. Imports of goods and services
India’s oil imports which had been growing
robustly at around 40% (2007-08) saw a decline in
growth of about 17% during 2008-09. India’s
merchandise imports started contracting from
November 2008 onwards on a year on year basis
along with oil imports whereas the contraction in
non-oil imports started from January 2009. During
the period from October 2008–September 2009,
imports have contracted more (22%) than exports
(20%).

31. The Indian trade collapse

32. Indian exports and imports fell in line
with global trade flows. In terms of year
on year growth rates, the export
contraction started from October 2008;
imports started contracting a little later,
from December 2008. During the core
period of the crisis, the average
contraction in exports and imports has
been around 20% in the first phase
(October 2008-September 2009) and
28% in the second (December 2008-
September 2009).

33. Given that the coming period is most likely to see a
relatively weak recovery of global trade, India will
have to try and achieve a robust growth in its exports
by expanding its share in major markets rather than
simply depend on the previous growth of global
trade. This will require a major overhaul of the
country’s export promotion mechanisms. The focus
should shift to addressing the binding constraints
currently imposed by physical infrastructure, skill
shortages, procedural complexities and inadequate
access to commercial bank credit especially for the
small and medium exporters.
ROAD TO RECOVERY

34. CONCLUSION

35. As recovery stalled and stagnation set in, several observers
warned of the possibility of a second recession. Since the US
economy has not fully recovered from the last recession, any
resumption would be considerably more painful.
The IMF stated in September 2010 that the financial crisis
would not end without a major decrease in unemployment
as hundreds of millions of people were unemployed
worldwide. The IMF urged governments to expand social
safety nets and to generate job creation even as they are
under pressure to cut spending. Governments should also
invest in skills training for the unemployed and even
governments of countries like Greece with major debt risk
should first focus on long-term economic recovery by
creating jobs.

36. Thus , the need of the hour is to
fight recession globally by co-
operation of all the recession hit
countries , rather than fighting it
individually.