The United States housing market correction (a consequence of United States housing bubble) and subprime mortgage crisis

coupled with high oil prices had significantly contributed to the current recession. U.S. employers shed 63,000 jobs in February 2008, the most in five years. Former Federal Reserve chairman said in April 6, 2008 that ³There is more than a 50 percent chance the United States could go into recession.´ On October 1st, the Bureau of Economic Analysis reported that an additional 156,000 jobs had been lost in September. In April 2008, nine US states were declared to be in a recession. Although the US Economy grew in the first quarter by 1%, by June 2008 some analysts stated that due to a protracted credit crisis and ³rampant inflation in commodities such as oil, food and steel´, the country was nonetheless in a recession. The evidence has built to the point that it is now beyond a reasonable doubt that the U.S. economy has entered recession.
What is recession?

Recession is a contraction phase of the business cycle. Broadly it is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A sustained recession may become a depression.
Causes of recessions

Currency crises, inflation, national debt, speculation, war can all lead to a recessions.
Effects of recessions

Bankruptcies, banks lend less money, deflation, foreclosures, reduced sales, stock market crash, unemployment are the effects of a recessions.
Predictors of a recession

There are no completely reliable predictors. These are regarded to be possible predictors. It is the opinion of the writer that unlike in the past predicting the present day economic activities of the nations are far more difficult. This is due to the web like tangles, complex connections and links of the economies of world.
Responding to a recession

and serve a double purpose including relieving the suffering caused by a recession. Less and less dollars coming into the markets causes pressure on the rupee thus making it difficult for the (CBSL) to defend the rupee. eager and highly competitive. Cuts in the interest rates are now widely anticipated. Precautions businesses can take First business owners can gauge customers¶ ability to resist recession and redesign customer offerings accordingly. In the US. Sri Lanka Due to the global nature of the current crisis Sri Lanka will no longer be able to escape unharmed this time around. the Federal Reserve has responded to potential slow downs by lowering the target Federal funds rate during recessions and other periods of lower growth. cuts are no longer followed by a longerterm rise in stock market indexes. lowering interest rates. there will be less tourist arrivals from European countries and that will affect the all ready troubled sector. thus. Central Bank response Usually.Strategies for moving an economy out of a recession vary depending on which economic school the policymakers follow. Few weeks back. Populist economists may suggest that benefits for consumers. Rising interest rates and inflationary pressure. For example. . The impact will depend on the sectors in varying levels. Lean principles can be used. US dollar appreciating at the expense of the rupee coupled with a war budget and high public sector expenditure will make things difficult for Sri Lanka. supply-side economists may suggest tax cuts to promote business capital investment. in the form of subsidies or lower-bracket tax reductions are more effective. 109 levels soon. replace unhappy workers with those more motivated. Central Bank¶s respond to recessions by easing monetary conditions. Both Government and business have responses to recessions. get better at what they do during bad times. It is expected the dollar to end at the Rs. After all on the bright side companies.g. e. Central Bank (CBSL) released more than US$ 22 million into the market in order to defend the rupee. While Keynesian economists may advocate deficit spending by the Government to spark economic growth. Laissez-faire economists may simply recommend the Government remain ³hands off´ and not interfere with natural market forces.

The sector is the largest source of foreign exchange earnings. However inward remittances sent in by Sri Lanka¶s housemaids in the Middle East and expats may result the country achieving a reasonable outcome in relation to the trade deficit. Development of rural industries will see the uplift of that sector and more economic stability in the country despite the global crisis. Development of rural industries The industrial sector has been a significant contributor to the Gross Domestic Product (GDP) of the country (27%). EU economy and on the rest of the world as well. Above factors combined will have a detrimental impact on the economic growth if steps are not taken to mitigate the impact. The continuation US and the Eurozone economic down turn will have a negative impact on the Lanka¶s textile and garments exports. The way out for Sri Lanka If the global crisis continues although Sri Lanka will not be able to totally avoid its consequences if certain steps are taken we can avoid a great impact and also will be able to develop the economy. when foreign funds try to withdraw their funds from Asian markets. 6. But this sector is predominantly confined to the cities of Gampaha and Colombo. This can be considered as an essential expenditure for future stability of the country. In fact 177. The worse is to follow. But this expenditure should not continue beyond 2009. Elimination of terrorism The 2009 defence budget is estimated at 177. Expected possible gains will not only be lost if the war is prolonged but will have a devastating affect on the economy. Nearly 50 per cent of Sri Lanka¶s textile and garments exports went to the US in 2007 while another 45 per cent went to the EU. If terrorism is eliminated or controlled at least by the mid to end of 2009 the positive ripple effect will see Sri Lanka to an economic boom. because of their dependency on the US economy.45 billion rupees to be spent in 2008. accounting for some 43 percent of the total. with cascading effects on the US.4 per cent higher than the estimated 166.06 billion rupees hopefully will be available for development and capital expenditure. .As a result the economy may be go into a recession.06 billion rupees.

The electrical and electronic sector is another key area that should be earmarked for development.18. But what should be at the core of the development strategy is the curbing of corruption and public expenditure. 217 million and is expected to generate 26. .212 jobs. corporate governance advice and management of environmental and social risks. Assistance for the development in this sector will create immense benefits to the economy. expertise and technical assistance. This can be achieved by providing equity capital. it will cater the growing demand for employment in rural areas. 27 are in commercial enterprises. This project includes 123 programmes with a total investment of Rs.If the Government plans to introduce 300 industries under the Gamata Karmantha project goes well. Of these projects. 26 pertaining to construction and 23 engaged in preliminary work. Developing small and medium business enterprises Small businesses account for the bulk of businesses in Sri Lanka. The development and regulating the local financial market and the (high-speed) internet are other key development areas.

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