Recession


Real world scenario:

From Europe to Australia, Asia to America, the people from each and every part of world currently are facing the dramatic collapse in the global financial market. The Investment market, the corporate world, the commercial banking sectors or the tourism industries are not the only sectors greatly suffering through this biggest traumatizing threat. The shattering effects of this Financial Meltdown are felt at consumers, the driving force of Economy. Known more commonly as 'The Deep Recession - 2008/09' or 'The Great Recession - 2008/09', this market crisis has emerged as the most recent as well as captivating challenge not only for the Economists but also for the corporate bosses. (The Age of Deflation, 2010)


Explanation

Recession is qualitatively the downturns of the GDPs of the nations around the globe. One of the commonly accepted definitions of Recession is that it is the situation where the GNPs of the nations have gone down for more than two consecutive financial quarters while the other definition goes like the periods where the GDPs of nations for a year experience a decrease of more than 3% and so on. The situation aroused from the collapsing of some of the large US banks and financial institutions in late 2007. But it has hit every street and corner across the globe. Business confidence is degrading. Commercial as well as the Investment bankers are fleeing. (Recession in UAE)

As far as present conditions are concerned in comparison to previous few years or decades one can say that it's very correct that the present slowdown is one of the worse which industrialized mankind had ever faced.

Now making a more explicit explanation regarding recession in UAE, one of the crucial ways in which this financial demon hurt the economy is a great hit to tourism. People travel less in recession and 17 - 22 % of GDP in UAE is based on tourism. UAE has few biggest and most expensive hotels on globe and thus great connection with tourism industry. The impact of recession on hotel industry can be understood by the closing of Burj Khalifa during financial dip.

Oil and gas industry was another setback to the economy. During recession, the country's overall export of oil deduced to great percentages which further reduced the GDP. (Khawaja, 2009)

UAE is a rich place and many of the peoples used to work here from rest of the world. With such reduction in liquidity in the nation and reduction in economic capitalization, the number of jobs in the country decreased to great folds. The World Bank estimated that the amount of income shipped back home by workers abroad (remittances) fell down by more than 7 percent in 2009 across the Mideast and Arab north Africa. According to some survey among 250 companies it was found that only 37 % of them want to hire during recession and hence, great job cuts.

So in UAE during recession, jobs are cutting, salaries are lowering, and pillars of capital industry are losing hope but it's not a curse rather a lesson for promoters of blind industrialization. Agencies, leaders of capital empires and developed economies share the responsibility to overcome this threat. As this time has provided an opportunity for lot of aspirants too, referring it as a demon is a matter of perspective. (Will the UAE get hit by the global recession, 2010)


Findings on the topic

Surveys and the reports produced by the World Bank state that this crisis is likely to affect the developing countries the most. The economic growth of the countries depends on the trade. But the world trade is expected to fall at the fastest rate during this period. The bank has also estimated a necessary repay of approximately 3 trillion dollars in public and private loans in developing nations.

Some of the severe outcomes of this threatening situation felt in UAE are:

  • Banks undergoing huge losses, some to the extent of bankruptcy.

  • Massive increase in the prices of commodity and assets followed by deflation

  • Increased Prices of Petroleum Fuels and oil products, Food Products etc.

  • Real Estate bubbling

  • Outsourcing and contracting work in place of Hiring of employees

  • Unemployment growth due to job cut downs

  • Temporary Holds on business Expansions

  • Affected payment capabilities of corporate firms (How hard will UAE's economic growth be hit by Global Recession?. , 2010)

Another finding is with the real estate of the country. Real estate activities are greatly affected by this crisis as clearly shown from low loan growth. It is mainly result of worldwide spread financial crises as according to the leading policymakers of the Middle East. UAE is the world's biggest oil producing and exporting region is clearly suffering from the global problems that put brake on a regional financial boom which is also supported by 6 years of high oil prices. Sultan Nasser al-Suweidi, the governor of the central bank, in a meeting near Fujairah said "The deceleration will be forced on us...contractions will be seen in everything, but I think that we will continue to grow in each and every direction in a pleasant way." This views matches with that of Emaar Properties' chairman Mr. Mohamed Alabbar who estimated that due to global crises, the real estate in Dubai can suffer a downfall of about 10-13%. "Growth of all these sectors are aggressive and are therefore responsible for the real demand", Alabbar who is one of the members of Dubai Executive Council, told in his interaction with daily 'Emirates Business'. "The domestic demand for the real estate is continuing to surpass supply and it will continue to do so for quite a lot of years."


Relation with real world issue:

Recession has major impact on real world issues. This part of the report will illustrate the key significance of recession on real world issues:

  1. Staffing by companies: Recruiting qualified people, training them for some specified purpose and then engaging them in the corresponding activity is termed as staffing. E.g. if the manager feels that staff is not sufficient then he can hire new staff. This is so far the mostly badly hurt sector of management by recession. According to Nelson D. Schwartz, global job losses from this recession that originated in the UAE in last quarter of 2007 could hit a astounding number of people in the end of financial year 2009. In UAE, the country has realized the drawbacks of entertaining foreign workers and thus started the policy of Emiritization which favors local people for jobs in UAE. (Recession in UAE)

  2. Real estate and banking: The second import real life factor that gets affected by recession is real estate industry in UAE. The turn down continued in the UAE markets from the beginning of the financial year with foreign investors selling off on worries of a hold back in the local real-estate and banking sectors. Also shares in other neighboring states also flopped as the result of global financial turmoil. The Dubai Financial Market, in a single day, ended down by 183 points or 5.14 % at 3,369.15. The problem is clearer if we consider the three-day loss that particular week of about 20%. The Abu Dhabi's Exchange also dropped by 163 points or 4.58 % to close at 3,395.31. It was followed by a 15% drop in the next three days. Banking and Real estate continued to suffer and many of the stocks in these mentioned sectors are tendering their lower limits. According to Sherif Abdul Khalek, "Speculation about the real estate sector slowing down and concerns of the liquidity crisis worsening both globally and locally are playing in the minds of the investors," Khalek is manager in 'Belton financial securities'. The problem associated is seems to be greatly magnified due to lack of celerity. (Khawaja, 2009)

  3. Stock market: As stated in the previous paragraph, stock market of the country was affected by a great degree and share price of almost all the countries were affected to a great extent.

References:

The Age of Deflation. (n.d.). Retrieved on May 20, 2010 form http://www.timesonline.co.uk/tol/comment/leading_article/article5748227.ece

Recession in UAE. (n.d.). Retrieved on May 20, 2010 from http://www.indoocean.com/recession-looming-at-recession-proof-economies-a-uae-perspective/

Idrees Khawaja. (2009). "Social impact of the global recession on Pakistan". 3rd China-ASEAN Forum on Social Development and Poverty Reduction. Volume 1. Pp 11

How hard will UAE's economic growth be hit by Global Recession?. Retrieved on May 20, 2010 form http://www.gowealthy.com/gowealthy/wcms/en/home/real-estate/property digest/january09/How-hard-will-UAEs-economic-gr-1231310412561.html

Will the UAE get hit by the global recession. (n.d.). Retrieved on May 20, 2010 form http://www.uaelists.com/index.php/20081206283/Latest/will-the-uae-get-hit-by-the-global-recession.html

Source: Essay UK - http://turkiyegoz.com/free-essays/finance/recession.php


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