By Dinesh Sundaram Keerthi Sagar Prabhu Prithviraj Sindhu V.

Vaikunth

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Topic Recession Introduction GDP Growth Elements of concern Growth rate in 2010 Govt.s debt burden Three speeds

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Dark clouds
Twin dangers

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A Recession is a contraction phase of the business cycle. National Bureau of Economic Research (NBER) is the official agency in charge of declaring that the economy is in a state of recession. An economy typically expands for 6-10 years and tends to go into a recession for about 6 months to 2 years

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The Business Cycle Dating Committee of The National Bureau of Economic Research in U.S. had dated the recession induced by financial crisis to December 2007. The recession, estimated to have lasted 18 months without signs of robust recovery.

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To overcome recession: Governments expanded expenditures.

Central banks pumped in liquidity to save the financial system and restore demand.

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Taking the world as a whole: 2006 -> More than 5% 2007 -> Dipped to 2.8% 2008 & 2009 -> -0.6% 2010 -> Recovered to 4.8%.

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10 8 6 4 2 0 -2 -4 -6 2006

2007
2008 2009 2010

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Speed and nature of recovery. In spite of positive growth, job losses were not being fully recovered and the unemployment rate remained high. In 2010, the unemployment rate touched 10% in U.S. and France.

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Growth was extremely unevenly distributed across regions and nations.

Recovery appear to be largely restricted to a few emerging market countries. Inflation is high in countries where the growth rate is higher when compared to other countries.

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10 9 8 7 6 5 4 3 2 1 Newly industrialized Asian economies Excluding G7 and 2006 2007 2008 2009 2010 Euro union G7 World

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Developing countries -> 7.1% G7 countries -> 2.5%

European union -> 1.7%

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 Subprime mortgage crisis (home loan defaults). Increased debt on the balance sheets of the government in the developed countries like U.S.

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Increase the reticence of govt. to substitute public for private expenditure as the stimulus to growth.

Unevenness in growth which was earlier seen as a sign of global imbalance, is now being celebrated as a cause for optimism.

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Three speeds at which the recovery is expected to proceed during 2011:

6% or more in the emerging economies led by China and India. 3% growth in U.S. Less than 2% growth in European union.

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Factors affecting balanced recovery are:

When growth is there, unemployment should also get reduced.

Lack of confidence due to cheap liquidity into the system. Recovery generated by developments such as the sovereign debt problems in Europe is partly responsible.

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Those emerging markets recording the highest rates of growth are experiencing symptoms of overheating in the form of inflation in goods and/or asset prices In China, inflation stood at 5.1% in 2010 when the growth rate crossed 10%.

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Housing prices also rose to 7.8%.

In India the growth has been accompanied with inflation. In addition, across emerging markets, the inflow of foreign capital fuelled by the availability of cheap credit in the developed countries is resulting in currency appreciation that undermines export competitiveness and hurts growth.

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Recovery to be financed with debt that makes it vulnerable. The growth in U.S. consumer spending might encourage emerging markets to return to relying on export led growth.

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www.wikipedia.com www.tradingeconomics.com

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