The economic slowdown- It happens when the GDP growth rate is low, it is not negative- it stays in the positive, but it is lesser in comparison to the previous years. For example, we have been seeing an economic slowdown in India in the past few years but economic slowdown does not mean recession.
Recession- Most of the economists describe a recession as when the GDP growth rate of a country goes into the negatives for two quarters or more and depression is a worse condition than recession.
Depression is basically recession over a long period It is defined as a minus 10 or even lower GDP growth rate of a country for three years or more
The Global Financial crisis of 2008 is referred to as the Great Recession. Depression is such a terrible condition that over the past 150 years, the world economy has faced depression only once -The Great Depression of 1929. You must have read about it in the history books- The great depression went on for more than 10 years, the GDP growth rate of the world economy had almost touched minus 15 %. The unemployment rate in most of the countries was 25-30%. Such a bad economic state worldwide has never happened since then.
Upcoming Crisis
After we know, what is the difference between economic slowdown, recession and depression, the question arises what is the situation now? This is just an economic slowdown. Where most of the people can work from home. So, we can come to the conclusion that IT sector is safe and can be handled at home. In fact, the company 'Twitter' has said that the employees can work from home for their whole lifetime. Click on the screenshot to view the full article.
But as in 2008, before we can tackle the recession, there is another threat to deal with: the risk of a financial heart attack. A recession is different from a panic. And a financial panic is what we began facing the week of March 8. It is that threat that continues to haunt the markets.
The immediate trigger was the breakdown of oil talks and Saudi Arabia’s announcement of a price war. On top of the worsening coronavirus news from Italy, this shocked markets and induced a contraction in lending and a flight to safety. The demand for cash was insatiable. The reality began to sink in that what started as an external biological shock to the economy might be mutating into an internal collapse in confidence and credit.
A sudden credit crunch exposes those that have too much debt and weak business models and have taken an excessive risk. Their distress spreads to the rest by way of business closures, job losses, and fire sales of otherwise good assets. Matters are made even worse if the economic victims have financed their activities with borrowing, such that their losses eventually strike the balance sheets of creditors that were unwise enough to lend to them. Fear of these repercussions contracts credit across the board.
In 2008, the banks were at the centre of the storm. Given the consolidation of their balance sheets, it is less likely that America’s big banks will run into difficulty this time. But Europe’s banks never truly recovered from the double shock of 2008 and the eurozone crisis. Italy’s public finances are in precarious balance. On Wall Street, fund managers of all kinds have been booking large losses and are facing huge demand for cash. A hard-pressed oil-producing country might be forced to offload assets from a sovereign wealth fund, thereby depressing prices for otherwise good assets and unleashing a chain reaction.
The most disconcerting sign has been the fact that as stock markets plunged, U.S. sovereign debt fell in price, too. That should not happen. Treasuries should function as safe havens. If their prices fall, it means that enough investors are desperate enough for cash to move even the biggest market.
Courtesy: ForeignPolicy
This economic crisis is one of those or even the first one which is disputed. The results are not clear. At the times of The Great Recession 2008 and even during The Great Depression, the reason was at most something related to economics and not with diseases. The economists made predictions about the future and many of them were proved to be right. But this time, some say, the upcoming situation will be the worst in 100 years after The Great Depression. While some say that when the lockdown opens, the situation would be easily handled. Because it is not related to the economy or any loss of any country in any of the things. Well, these are only predictions and no one knows the future.
The precursor to all this situation dates back to December 2019 and we all know the origin for this, Wuhan. I am not spreading any hatred against China but no one can deny the fact that some irresponsibilities lead to this situation. Whether these were done by the USA, Russia, Italy, Spain, China or even India. No one knew that this 11 lettered word would play such a significant role in our lives or even this can take so many innocent lives with it. Well, I offer my sympathy to all of them who are suffering or has suffered and I hope the world also does.
Well, let's hope for the best and support the situation. The only way we see now to break the chain. Please don't go outside. Show your support by being inside your homes. Sorry 'Sweet Homes'.
Proclamation for The Blog
I have decided that I would be posting one good news about the pandemic every time I post an Informative post. This is to spread positivity amongst everyone so that a positive man can fight this pandemic positively. Today, let's start with something connected to the Economy.
Carbon Emissions and Economics
Very informative. Good work!
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