Introduction

What is recession?

Recession, as established by economists, is the condition in which economic growth slows and all elements of economic growth begin to fall in terms of their average measurement. The question is if the economy doesn’t work for a month or two, then we call it a recession period. The answer to this is ‘No’. A standard period to make sure the economy is affected by recession is when the factors of production and related items start to decline and decline steadily for two or more than two quarters.

Items referenced here are as follows:

Gross Domestic Product or GDP

Employment

investment

Entry

Spent

Due to the fall of these elements, there is a great impact on all businesses, whether local or global, and the income of the companies and their subsequent profits begin to decrease. The global village is greatly affected and all companies these days are multinational in nature and interact and trade with companies from countries and buy or sell their products in various countries or are dependent in one way or another. Therefore, in a phase of decline, all countries also suffer to different levels and degrees.

The Story Behind the Recession: Causes of the Recession

The history of the 2006 recession dates back to the period when Jimmy Carter was president of the states (1978-1982). He had signed a bill called the ‘Community Reinvestment Act’. This act made the house available to the poor. During the last year of Bill Clinton’s presidency, he realized that the bill signed by Jimmy Carter was not being enacted with such seriousness and reinforced and strengthened this law. Due to this law, banks were forced to provide mortgage loans to borrowers who suffered from bad credit and did not have the ability to repay the debt. All that was needed to obtain the mortgage loan was a written statement that they have the ability to repay the loan they are applying for. Due to this law, there were a large number of people who bought the houses at extremely low rates from the year 2000 to 2006. These were called subprime mortgages and there were millions of such subprime mortgages that were given to people.

Thus, the housing market in the US was buzzing with excitement and excitement, leading people to buy homes that they might not have otherwise purchased. The reason behind this is that home mortgage charges were extremely low, less than 4 percent. People assumed that the prices of the houses they are buying on loan would definitely go up, but apparently they did not. The Federal Reserve then raised interest rates from 1% to 5%, and subsequently the interest rate on home mortgages rose to 7% and 8% in some of the cases.

In the year 2006 house prices dropped and many people began to execute the debt they took on to buy houses. This led to instability for the banks and the hedge fund service that had done the legwork to get the securities so that people could buy houses with loans. Therefore, many banks and hedge funds faced severe losses. At the end of August 2007, banks were afraid to lend to other banks and the whole financial scene became very unstable. This had cost a $700 billion ransom. Many of the nationalized banks and hedge funds were on the verge of bankruptcy and many had already done so. Companies didn’t have enough money to pay their employees and they started laying people off. The unemployment rate increased considerably.

Some facts about the economic recession of 2008

1.- Oil prices stagnated and crossed the price of $100 per barrel. This was due to the destabilizing geopolitical environment, declining stock prices, oil production cuts by OPEC.

2.- There was a considerable increase in stable food prices. It ranged from an approximate 15% increase in prices.

3.- The inflation rate rose to 6% and the increase in foreign debt grew in an amazing way. It reached 2.5 million US dollars. The current account deficit rose to 15% of the Gross Domestic Product. State income fell and later the purchasing power of individuals.

4.- At the end of 2008, the increase in the unemployment rate amounted to 12.5%.

Impact of the recession on the country’s economic growth

1. Stock prices decline and cash inflow to the economy is reduced.

2. Fluctuating and Inconsistent Credit Cycle of companies: By not having enough purchasing power, individuals did not pay the debt in a timely manner, which forced companies to restructure credit policies or opt for the refinancing option.

3. Unemployment: Employee layoffs are another major setback when you think about the recession. Companies try to save and set aside money and they try to fire their employees to do it.

4. Decrease in Gross Domestic Product or GDP

The decrease in income and profits leads to a decrease in the production of the goods that are produced.

5. Decreased quality of goods and services

Companies do not spend money on their staff, research and development, quality production, marketing or advertising and therefore there is a sharp decline in the goods and services that companies provide. The quality does not tend to remain the same as before and declines.

What solution did the government apply to cure the recession?

In 2009, the government launched a program called the Economic Stimulus Plan. Under the plan, the government decided to spend $185 billion that year. Although the effect of the recession diminished to a great extent, the situation was not completely eradicated in the same year. The unemployment rate began to decrease but was still seen in many countries and companies and persisted in 2011 as well.

Suggestions

There are some thought-provoking ways companies can fight the recession when it comes. These methods and strategies cannot claim to eradicate the effect of the crisis, but they help to stabilize the company when all other companies are on the verge of decline and keep the company in a healthy position.

1. Diversify

The company should not stick only to a set of products that it sells in the market. They should try to break into new products and services or break into an entirely new industry. This will help the company reduce risk.

2. Investment in R&D, Marketing and Improvisation

Any investment made in research and development, marketing, customer connection, branding, and product improvisation pays off in the normal course of time and even during economic downturns.

3. Customer commitment

Maintaining a large and loyal customer base helps businesses fight the recession. The company must establish effective policies and plans to acquire and retain customers. Investing in client strategies is a good option.