Introduction

What is the recession?

Recession, as economists claim, 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 does not work for a month or two, then we call it a recessionary period. The answer to this is ‘No.’ A standardized period to ensure that the economy is affected by the recession is when the factors of production and related items begin to decline and are steadily declining for two or more than two quarters.

The items referenced here are as follows:

Gross domestic product or GDP

job

Investment

Entry

Spending

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 considerably 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 depend 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 Law”. 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 enacted as seriously and he reinforced and strengthened this law. Due to this law, banks were forced to grant home loans to borrowers who suffered from bad credit and did not have the ability to pay the debt. All that was needed to obtain the home loan was a written statement that they have the ability to repay the loan they are applying for. Because of this law, there were a large number of people who bought the houses at extremely low rates from 2000 to 2006. This was called subprime mortgages and there were millions of subprime mortgages that were issued to people.

Therefore, the housing market in the US was full of enthusiasm and enthusiasm that led people to buy houses that they could not otherwise have paid for. The reason behind this is that there were extremely low home mortgage charges, which were less than 4 percent. People assumed that the prices of the houses they are buying on loan will definitely go up, but apparently they did not. Then the Federal Reserve 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 2006, house prices fell and many people began to execute the debt they took to buy houses. This led to the instability of the banks and the hedge fund service that had done the groundwork to get the securities so that people could buy houses with loans. Therefore, many banks and hedge funds faced serious losses. At the end of August 2007, banks were afraid to grant loans to other banks and the entire financial scene became very unstable. This had cost a $ 700 billion ransom. Many of the nationalized banks and hedge funds were on the brink of bankruptcy and many were already bankrupt. The companies did not have enough money to pay their employees and began to lay off staff. The unemployment rate rose dramatically.

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 destabilization of the geopolitical environment, the fall in share prices, cuts in oil production by OPEC.

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

3.- The inflation rate rose to 6% and the increase in foreign debt grew astonishingly. It reached 2.5 million US dollars. The current account deficit rose to 15% of the Gross Domestic Product. State revenues were reduced and, subsequently, 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 flows into the economy.

2. Fluctuating and inconsistent credit cycle of companies: As individuals did not have enough purchasing power, they did not pay the debt in a timely manner, forcing companies to restructure credit policies or choose the refinancing option.

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

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. Decrease in the 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 stay the same as before and decreases.

What solution did the government apply to cure the recession?

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

Suggestions

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

1. Diversification

The company should not keep only one set of products that it sells on the market. They should be trying to foray into new products and services or foray 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 for itself over the normal course of time and even during the economic downturn.

3. Commitment to the client

Maintaining a large and loyal customer base helps companies fight the recession. The company must establish effective policies and plan for customer acquisition and retention. Investing in client strategies is a good option.