A recession is widely accepted to be a drop in GDP (the total amount of goods and services produced by a country) for two consecutive quarters which affects measures such as employment and a drop in the stock market.
A depression on the other hand is known to be a sustained recession where an economy experiences a significant negative growth for a sustained period of time usually for about one or two years as measured by a countries GDP; this may lead to the devaluation of a currency, sustained unemployment and fall in the whole sale and retail trade.
Identify and comment on a small number of factors (2 or 3) that have affected your country as a result of the global crisis.
Housing market: During the 90s to 2007 referred to the housing boom in the UK, the increase in house values actually raised house owners’ confidence as they could re mortgage and get better loans as against the increased value of their homes which resulted increased spending but as housed prices took a downward plunge , this resulted in the reduction of consumer confidence and some house owners where left with negative equity and on the banks might tighter mortgage criteria as banks would only lend to costumers with more secured and higher collaterals leading to fewer people being able to acquire homes, a nightmare to first time buyers.
Unemployment: In the UK at the heat of the recession in 2008, unemployment was just over 5% and at the end of 2009 unemployment was at 8% or 2.5million. Unemployment in 2011 was at its highest at 2.7million a number of people in the UK where registered to receive job seekers allowance. The near collapse of the whole of the banking sector meant that many expats had to migrate from the UK to countries with more stable economies to seek out jobs.
In addition to the examples provided on pages 2 & 3 of the case study can you provide some other examples of the impact of the ‘credit crunch’?
Devaluation of currency: Devaluation of currency is when a currency reduced in value as compared to other currencies (usually major currencies). During recessions currency devaluation happens due to factors such as a forced devaluation to encourage exports of goods and thus encourage foreign demand and local supply helping to boot the economy; or a natural devaluation where the currency gets devalued due to acts of customers; such as removing assets from the county abroad to more secure investments. The reduction of interest rates during the 2008 recession also meant that many individuals or institutions withdrew their deposits from the UK causing a further fall in the value of the currency (as more GBP was sold for other currencies).
We can see in the UK, the GBP experienced a marked depreciation during the 2008 recession:
The Pound Sterling fell nearly 20% from 2007 (before the start of the great recession) to July 2009 ‘ http://www.economicshelp.org/blog/9746/currency/happens-value-currency-recession/
As we can see currency devaluation is an ever present rick during a recession.
Retail: During the recession, the retail sector was also hugely affected as many well-known retail shops such as Woolworths and Dolcis and Borders shut its doors due to bankruptcy.
Analyst at verdict estimate that retailers with sales of up to ??7.8bn went bust between 2008 ‘ 2010 and as at 2009 one in seven shop was empty. Wood (2010)
Other retail shops also went into administration Peacocks in 2012, Comet (UK second largest electronic shop) in 2012, Jessops and Azendi Jewellery shop.
Can you think of any businesses (either from your own country or elsewhere) which may not be affected negatively as a result of the current economic and business downturn? Why do you think that these organisations have been less affected than others?
The essential food industry is known to be an industry which is relatively price inelastic; so in general this industry is expected not to be as significantly affected as other industries. Nevertheless there were a few successes even in this industry. The period of the credit crunch saw a rise of discount shops such as Aldi and Lidl in the Uk as Joanna Blythman stated in her article the rise of Lidl Britain during the credit crunch. 2008
‘When these German discounters arrived in Britain – Aldi in 1990, Lidl in 1994 – they looked unlikely to pose any real threat to our big established supermarket chains. They were widely derided for selling poor food to poor people. Now the Hondas and Volvos are lining up in their car parks and their British image is being reinvented.’ – http://www.telegraph.co.uk/news/features/3637902/The-rise-of-Lidl-Britain-during-the-credit-crunch.html
As a result of the economic recession, there was lack of consumer confidence; people had less disposable income and so they forgo luxury items for cheaper and discounted alternatives and stores such as Aldi and Lidl offered products significantly lower in price than other retailers. Because of this increase in customer traffic and consumer spending for cheaper alternatives they were able to benefit greatly. This saw the rise of these discounted shops in the UK.
Another are car repair shops. Although the automobile industry suffer greatly during recession, people would rather keep their old cars than purchasing a new one. Which means more maintenance and more repairs keeping the auto mechanics in business and even having over turns in a period of a recession.
The period also saw the rise of budget airlines such as easy jet and Ryanair as customers sort cheaper means to travel.
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Nolan, S. 2013. Britain faces slowest housing market recovery on record with some property prices not set to pick until 2021. [Internet] (06.01.2013):Dailymail. Available at: http://www.dailymail.co.uk/news/article-2257916/Britain-faces-slowest-housing-market-recovery-record-property-prices-set-peak-2021.html (24/04/2015)
Blythman, J. 2008. The rise of Lidl Britain during the credit crunch [Internet]: The Telegraph. Available at http://www.telegraph.co.uk/news/features/3637902/The-rise-of-Lidl-Britain-during-the-credit-crunch.html (24/04/2015)
Wood, Z.2010. UK recession: Winners and Losers [Internet] (26/01/2010):The Guardian. Available at: http://www.theguardian.com/business/2010/jan/26/uk-recession-winners-and-losers (27/04/2015)
Pettinger, T.2014. What happens to the value of currency during recession? [Internet] (16/01.2014): Economicshelp. Available at: http://www.economicshelp.org/blog/9746/currency/happens-value-currency-recession/ (27/04/2015)