Inflation has significantly increased practically everywhere in the world. Many nations are running out of forex reserves. Everything is getting out of reach for the average person, from the price of petrol and diesel to the cost of food. The economy of many nations, including Sri Lanka and Pakistan, is in turmoil. In this circumstance, concerns are being voiced as to whether a bigger recession is impending. Recent occurrences are also pointing in this way. In this article, we will analyze the current factors that are pre-signs of a recession.
First, what exactly is this economic recession?
Without going by a bookish definition, the economic recession is the term used when the economy’s growth ceases for an extended period of time continuously, employment declines, inflation increases, and people’s incomes begin to decline. The global economy has experienced a recession four times. The economic slump occurred for the first time in 1975, again in 1982, again in 1991, and once more in 2008. It’s feared once more right now.
Precursors of economic recession:
World Bank’s forecast:
The World Bank has made a comment lately. It stated that by the end of this year, global economic growth is anticipated to decrease. The majority of nations should therefore get ready for an economic downturn. A recession akin to the 1970s could result from the high inflation and slow growth rates that the entire world is currently experiencing. The impact of it is also felt globally.
Mass layoffs and low hiring:
Large corporations around the world produced the second indication of the global economic slowdown. Alphabet, the parent company of Google, has announced that it will slow down the hiring process for the remainder of this year. This is being done in view of the possible slowdown in the coming months. When the economic crisis struck in 2008–2009, Google ceased hiring. There are currently 1.64 lakh employees at Google.
Businesses including Apple, Facebook, Microsoft, Netflix, Tesla, and Twitter have also temporarily prohibited hiring. There are currently 200 million unemployed people worldwide. Earlier in 2019–20, during Corona, 18 crores 70 lakh individuals lost their jobs.
Increasing inflation rate:
The inflation rate in the US has risen to 9.1%, the highest level in the previous 40 years. With an annual rate of 9.1%, inflation in Britain is at its highest level in 40 years. The rate of inflation in the European Union is at 7.6%. The wholesale inflation rate is 15.18 percent both in India and globally.
Factors responsible for this situation:
In 2020, there was a global lockdown as the corona pandemic spread. The result was the downfall of the economy. The growth rate completely stopped. The lockdown led to the unemployment of millions of people. The supply chain of items shipped from China came to an abrupt halt when the lockdown began. If the supply dropped, the demand for goods would rise globally, which would boost inflation.
Besides, Russia began attacking Ukraine on February 23 of this year. Numerous nations, especially the United States, placed numerous limitations on Russia. The availability of food, oil, and other necessities was affected globally. The lives of regular people were directly impacted by the price increase of crude oil. Everything from food to drink grew more expensive as a result of the rising cost of transportation.
The world’s central banks have now raised interest rates to combat inflation. Foreign investors pulled money out of the stock market as banks boosted interest rates. When international investors withdrew money, it had a direct impact on the local currency.
How this will affect India?
Experts are predicting that China and India would feel very low heat of this recession. India, the major economy with the fastest growth rate, can also avoid being affected by the downturn. The prospect of a modest impact from the global economic recession, however, cannot be ruled out.
The stock market’s downward trend will not yet cease, according to experts. Markets will continue to decline due to the global economic slowdown. According to the estimate, there will be a 1.5% reduction as a result of the US economy’s current recession. For comparison, it was 10% during the Corona outbreak and only 4% during the 1929 Great Depression.