full 64 on recession

7/31/2019 Full 64 on Recession

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What Is Recession ?

A Recession is a contraction phase of the

business cycle.

National Bureau of Economic Research

(NBER) is the official agency in charge ofdeclaring that the economy is in a state of

recession.


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They define recession as :

significant decline in economic activity lasting more

than a few months, which is normally visible in realGDP, real income, employment, industrial

production, and wholesale-retail sales.


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What

Causes

Recession ?


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An economy typically expands for 6-10 years andtends to go into a recession for about six months to 2

years.

A recession normally takes place when consumersloose confidence in the growth of the economy and

spend less.

This leads to a decreased demand for goods andservices, which in turn leads to a decrease in production,

lay-offs and a sharp rise in unemployment.

Investors spend less as they fear stocks values willfall and thus stock markets fall on negative sentiment.


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World Economy

The Global Economy


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The world economy grew 5.2% in 2007Powered by growth in China (11%), India(9%) and Russia (8%).

The BRIC countries had been posting7%-10% grow rates for years.

Property and stock market booms.Investment was bringing economicdevelopment.

Developing and less developed economiesdepend on the developed countries for theireconomic wellbeing.


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What a difference a year

makes??

The global economy has been hit bya rapid one-two punch that set the

stage for stagflation to make a come-

back.

It started with the sub-prime crisis

in the US.


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U.S.A Consumption based Economy.

2/3rd economic activity i.e. GDP

comes from consumers.

Credit - free flowing for U.S consumers

Credit card loans for personal consumption

Auto loans for purchase of cars

Home loans for purchase of houses


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Result

Overconsumption/

Extravagant

spending

by the consumer

for years the prices of homes in the U.S. kept rising.for years the prices of homes in the U.S. kept rising.

For years pricesof homes in US

kept rising

for years the prices of homes in the U.S. kept rising.for years the prices of homes in the U.S. kept rising.for years the prices of homes in the U.S. kept rising.

Thus


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Felt a need to Preserve capital. Therefore

Started tightening credit ,

Started restricting lending to the U.Sconsumer and businesses.

Since thenLoans became difficult to come by banks,

Bank cut Credit card limits.

U.S. consumer significantly reduce

spending.


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Reduced spending meant - reduced activity for mostbusinesses and consumers.

businesses started to layoff workers(firing people as there was no work).


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Because of layoff Unemploymentstarted to rise which resulted in further

reduction in spending by consumer.


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Rising oil prices at $100 a barrel


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Dollar value

Declined

Stock market

crashed


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All this slowed down the growth of

economy.

GDP growth rate fell to 2%

All this put together has

driven the U.S. economy in

recession


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In Feb, 63,000 jobs were lost.

In Sept, 159,000 jobs were lost, the 5 yr U.S

record.

I l J l d it t L A l


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In early July, depositors at Los Angeles

offices of Indy Mac Bank lined up in the

street to withdraw their money.

On July 11,Indy Mac - the largest mortgage lender

in the US - was seized by federal regulators.

h k d f b
http://en.wikipedia.org/wiki/IndyMachttp://en.wikipedia.org/wiki/IndyMac


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During the weekend of September 14-15,

Lehman Brothers declared bankruptcy

after failing to find buyers.

B k f A i d t h M ill
http://en.wikipedia.org/wiki/Lehman_Brothershttp://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothershttp://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothershttp://en.wikipedia.org/wiki/Lehman_Brothershttp://en.wikipedia.org/wiki/Bank_of_Americahttp://en.wikipedia.org/wiki/Merrill_Lynchhttp://en.wikipedia.org/wiki/Merrill_Lynchhttp://en.wikipedia.org/wiki/Bank_of_America


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Bank of America agreed to purchase Merrill

Lynch, & consortium of 10 banks created an

emergency fund of at least $70 billion to

deal with the effects of Lehman's closure.

i i b
http://en.wikipedia.org/wiki/Bank_of_Americahttp://en.wikipedia.org/wiki/Merrill_Lynchhttp://en.wikipedia.org/wiki/Merrill_Lynchhttp://en.wikipedia.org/wiki/Merrill_Lynchhttp://en.wikipedia.org/wiki/Merrill_Lynchhttp://en.wikipedia.org/wiki/Bank_of_Americahttp://en.wikipedia.org/wiki/Citigrouphttp://en.wikipedia.org/wiki/Citigroup


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On Sep 29, Citigroup beat out

Wells Fargo to acquire the

Wachovia's assets will pay $1 ashare, or about $2.2 billion.

A h b k
http://en.wikipedia.org/wiki/Citigrouphttp://en.wikipedia.org/wiki/Wells_Fargohttp://en.wikipedia.org/wiki/Wachoviahttp://en.wikipedia.org/wiki/Wachoviahttp://en.wikipedia.org/wiki/Wells_Fargohttp://en.wikipedia.org/wiki/Citigroup


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Another bank

failure occurred

on September25 when JPMorgan Chase

agreed topurchase the

banking assetsofWashington

Mutual

The year 2008 as of September 17 has seen 81
http://en.wikipedia.org/wiki/JP_Morgan_Chasehttp://en.wikipedia.org/wiki/JP_Morgan_Chasehttp://en.wikipedia.org/wiki/Washington_Mutualhttp://en.wikipedia.org/wiki/Washington_Mutualhttp://en.wikipedia.org/wiki/Washington_Mutualhttp://en.wikipedia.org/wiki/Washington_Mutualhttp://en.wikipedia.org/wiki/JP_Morgan_Chasehttp://en.wikipedia.org/wiki/JP_Morgan_Chasehttp://en.wikipedia.org/wiki/September_17http://en.wikipedia.org/wiki/September_17


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The year 2008 as ofSeptember 17 has seen 81public corporations file for bankruptcy in theUnited States.

Lehman Brothers being the largest bankruptcy inU.S. history also makes 2008 a record year in terms

of assets with Lehman's $691 billion in assets allpast annual totals.

The year also saw the ninth biggest bankruptcywith the failure of Indy Mac Bank.

Other Famous who got bankrupt were, fannies

mae & Freddie Mac, aig, bearstearns etc.
http://en.wikipedia.org/wiki/September_17http://en.wikipedia.org/wiki/September_17


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IMPACT OF GLOBAL

RECESSION ON INDIA

Indian companies have major outsourcing deals from the


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Indian companies have major outsourcing deals from theUS.

India's exports to the US have also grown substantiallyover the years.

More people have sold the shares in the indian sharemarket than they bought in the recent weeks. This hasadded to the fall of sensex to lower points.
http://www.simplewayoflife.net/2008/10/17/global-economic-recession-indian-economy.htmlhttp://www.simplewayoflife.net/2008/10/17/global-economic-recession-indian-economy.html


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One danger meanwhile is of a dip in theemployment market. There is already anecdotal

evidence of this in the IT and financial sectors, andreports of quiet downsizing in many other fields ascompanies cut costs.

Many companies has laid off their staffs, thenumber of tourists inflow to india has come down,

companies have cut down compensations andperks etc, government and other privatecompanies are reluctant in starting new ventures

and starting new projects etc.

One of the casualties this time could be real estate where


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One of the casualties this time could be real estate, wherebuilding projects are half-done all over the country and inthis tight liquidity situation developers find it difficult toraise finances.

The only way out of the mess is for builders to drop prices,which had reached unrealistic levels and assumed the

characteristics of a property bubble, so as to bring buyersback into the market, but there is not enough evidence ofthat happening.

Recession in jobs availiability and companies


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Recession in jobs availiability and companiesfollowing downsizaing in the existing availablestaff and cutting down of the perks and salary

corrections. Globally the financial sector sackingthe existing base ofemployees
http://www.articlesbase.com/international-business-articles/impact-of-global-recession-on-indian-market-655636.htmlhttp://www.articlesbase.com/international-business-articles/impact-of-global-recession-on-indian-market-655636.html


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In high numbers in US the major example being CITIGroup same still followed by others in hospitalityindustry Jet and Kingfisher Airlines too. The cut insalary for the pilots being 90 % can any one imagine

such a huge cut in salary


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For the first time in five years, Indias export growthhas turned negative. Exports for October 2008contracted by 15% on a year-on-year basis. This

should not surprise as the OECD economies thataccount for over 40% of Indias export market havebeen slowing for months.

With the US and EU already entering a phase ofrecession, Indias export growth had to fall sharply.must be noted this growth contraction has come

after a robust 25%-plus average export growth sinc2003. A low-to-negative growth in exports maycontinue for sometime until consumption revives inthe developed economies.


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In summary, at the macro-level, a recession in theUS may bring down GDP growth, but not by

much. At the micro-level, specific sectors could beaffected. Innovation now may prove to be theengine for growth when the next boom occurs.

For US firms, who have long looked at China as abetter investment destination, this may be a goodtime to look at India as well. After all, 350 million

people with purchasing power cannot be ignored.This is not a sales pitch for India, but only a gentlesuggestion to US corporations.


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A slowdown in the us economy is bad news for

India because:-

Indian companies have major outsourcing

deals from the us.

Indias export to the us also grownsubstantially over the years.

Indian companies with big tickets deals inthe us are seeing their profit margin

shrinking.


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Share market!


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Most people have sold the shares.

Foreign investors have pulled outfrom stock market.

Stock broking houses are laying-off people.

People have started saving money.


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IT &real

estate

sector

IT industries financial sectors real estate owners


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IT industries, financial sectors, real estate owners,car Industry, investment banking and otherindustries as well are confronting heavy loss due to

the fall down of global economy. Inflation and psychological impact of the us crisis.

benefits are missing as companies look to cut cost.

India's export growth is also slowering down.

one of the casualties this time are real estate,where building projects are half done al over the

country and in this tight liquidity situationdevelopers find it difficult to raise finance.

F d i f I di h b f


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Federation of Indian chambers of

Commerce and Industry (FICCI) found

that faced with the global recession,inventories industries like garment,

gems, textiles, chemicals and

jewellery had cut production by 10 percent to 50 per cent.


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Industrial sector!

G d h i i


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Government and other private companies arereluctant in starting new ventures and starting newprojects.

Projects that are halfway to completion, or companiesthat stuck with cash flow issues on business that are

yet to reach break even, will run out of cash.

Car, bike & truck sales down.

Steel plants also cutting production.

Hospitality and airlines are hit by poor demand.

Companies in the private sector and government


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Companies in the private sector and governmentsector are hesitant to take up new projects. And theyare working on existing projects only.

Projections indicate that up to one crore persons couldlose their jobs in the correct fiscal ending March. . The

one crore figure has been compiled by Federation ofIndian Export Organisations (FIEO), which says that ithas carried out an intensive survey.

The textile, garment and handicraft industry are worseeffected. Together, they are going to lose four million

jobs by April 2009, according to the FIEO survey


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Banking sector!


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Indian banks are facing through a tough time ofliquidity crunch. Lehman Brothers had invested a

great amount in the stocks of Indian banks that haveinvested in derivatives.

A sudden fall in the economy directly affectedLehman and Merill, eventually forcing them to file abankruptcy.

Falling down of Lehman had a great impact on theleading international bank, ICICI Bank, a bank that hadinvested in Lehmans bonds. This meltdown even have

covered the Axis Bank but not to a great extent.


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Lehman Brothers had signed a partnership with someof the real estate companies like Peninsula Land Ltd

and DLF Assets. These have also suffered a heavy loss.

With all this, the Indian Sensex swung violentlydownward, mainly because of the foreign companiespulling out credits to meet high inflations.

Central banks have worked to improve liquidity but

are charging higher credits. The interest rates havedrastically increased from 11.5% to nearly about 16%.

On the issue Mr Manmohan Singh suggested


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On the issue Mr. Manmohan Singh suggested-

A coordinated fiscal stimulus by countries that are in aposition to do so would help to mitigate the severityand duration of the recession.

It would also send a strong signal to investors aroundthe world. resort to fiscal stimulus may be viewed asrisky in some situation, but if we are indeed on the

brink of the worst downturn since the greatdepression, the risk may be worth taking, he added.


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CORRECTIVESTEPS

TAKEN TOCHECK

RECESSION

RBI needs to neutralise the outflow of FII


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RBI needs to neutralise the outflow of FIImoney by unwinding the marketstabilisation securities that it had used tosterilise the inflows when they happened.

This will mean drawing down the dollarreserves which is important at this hour.

In the IT sector, there should becorrection in salary offerings rather than

job cutting.

Public should spend wisely and save


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Public should spend wisely and savemore.

Taxes including excise duty and customduty should be reduced to lighten the

adverse effect of economic crunch onvarious industries.

In real estate the builders should dropprices, so as to bring buyers back into themarket.

Also the government should try and


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Also, the government should try and

improve liquidity , while CRR and SLR

must be cut further.

Indian Companies have to adopt a multi-

pronged strategy, which includes

diversification of the export markets,

improving internal efficiencies to maintaincost competitiveness in a tight export

market situation .

Poli r t (02 j n 2009)


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Policy rate (02-jan-2009)

The Repo Rate has been cut by 50 bps to 5.5 % w.e.f.
http://en.wikipedia.org/wiki/Repo_Ratehttp://en.wikipedia.org/wiki/Repo_Rate


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p y p

November 03, 2008.

The SLR has been cut by 100 bps to 24.0 % w.e.f.November 08, 2008.

The CRR has been cut by 100 bps in two stages.First 50 bps cut w.e.f. October 25, 2008 and another

50 bps cut from November 08, 2008. The current

CRR is thus 5.5. The Cash Reserve Ratio (CRR) hasbeen further cut by 50 basis points from 5.5 per cent

to 5.0 per cent from the fortnight beginning January

17, 2009.

Reserve Ratios (2008)
http://en.wikipedia.org/wiki/Repo_Ratehttp://en.wikipedia.org/wiki/Statutory_Liquidity_Ratiohttp://en.wikipedia.org/wiki/Reserve_requirementhttp://en.wikipedia.org/wiki/Reserve_requirementhttp://en.wikipedia.org/wiki/Statutory_Liquidity_Ratiohttp://en.wikipedia.org/wiki/Repo_Rate


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Cash Reserve Ratio 5%. Statutory Liquidity Ratio 24.0%.

Lending or Deposit Rates (2008)Prime Lending Rate 12.75%-13.25%. Saving Bank Rate 3.5%

Deposit Rate 7.50%-10.75 .

i i


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Current economic scenario -

Impact of recession on India

Recession has grabbed almost all the

organisations of the world.

Several people have lost jobs - facingthe financial problems.

Government - doing best to come out of

the problem.

Banks are providing business loans at

low rate. Government - providing money


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Government providing money

packages to organisations.

If I talk about India, here the situation isstill satisfactory if compare it with

other countries of the world.

Reserve bank of India (RBI) has

decreased the rate of interest.

SBI and ICICI are also providingdifferent types of loans at a low rate ofinterest.

Organisations are cutting cost to


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Organisations are cutting cost to

stand in the market.

Export businesses of India is going

up.

The real state was doing goodbusiness.

But nowadays the condition of realstate is still worse because ofrecession.


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CONCLUSION


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Acknowledgement

We are thankful to the people

who have helped in the making

of this presentation, Thesepeople include our parents, our

own Rakhi maam and ourfriends.


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Sources

www.google.com.

www.wikipedia.com.

Business line the magazine.

G M b
http://www.google.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.google.com/


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Group Members

ASHWINI GOHIL ( 13)VISHAKHA MEHTA ( 26)

VANDANA DAKI (06)MADHURI AGARWAL (01)

JINAY GANDHI (57)BHAVYA SHETHIA (47)

ABHISHEK KUMAR (60)


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full 64 on recession

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