GLOBAL ECONOMIC MELTDOWN “Repercussions, Challenges and Reforms”

IMPACT ON TRADE, INDUSTRY AND BANKING SECTOR

The Economic Heat

The large outsourcing company Wipro dismissed 2.5 percent of its work force in the second quarter. Interest rates jumped from 6% to 15% making impossible for businesses and households to service their bank borrowings “Liquidity crises" in the market. The Jordanian capital Amman is facing the brunt of the meltdown and preparing for the worse.

It's a recession when your neighbor loses his job; it's a depression when you lose yours. Harry S. Truman

The Global Economic Meltdown

Economic recession is an indicator of an economic downturn A recession is a prolonged period of time when a nation’s economy is slowing down, or contracting. This slow-down has to continue for at least six months to be considered a recession.

The Business Cycle

Its Effects
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Includes high oil prices which led to drastic high food prices A substantial credit crisis leading to the drastic bankruptcy of large and well established investment banks and commercial banks Increased unemployment Slump in personal income An unhealthy stock market

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“Recession – The ultimate Financial Checkpost”

IMPACT ON TRADE, INDUSTRY AND BANKING SECTOR

Trade – The World Connector

Trade is the willing exchange of goods, services , or both The original form of trade was barter, the direct exchange of goods and services. Types - Bilateral and Multilateral Various Innovations in Trade

Significance of Trade
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Trade promotes peace among nations It encourages exchange of ideas and encourages new inventions. For example, China or any other country does not need to reinvent light bulbs. Increasing global trade encourages small countries to adopt the language of a larger trading bloc Factor price equalization Increase in GDP of a nation More Trade, Less poverty Promotes Industrial growth

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Meltdown in Trade
 The Great Depression was a
major economic recession that ran from 1929 to the late 1930s, where a drop in trade and other economic indicators. The nation's trade deficit fell in December to a six-month low of $6.25 billion The China-U.S trade gap was $25.9 billion in October The trade deficits of recent years, which peaked at 5.8% of GDP in 2006

The Indian Side-effects
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Decline in export growth to negative 9.9% is a reflection of coupling of Indian exports with global slowdown Recession Infects the Indian Textile Industry since almost 50% of the total textile production is being exported to US and EU. India's merchandise exports during October were valued at $12.8 billion, 12 percent lower India 2007 Gold imports seen at record levels (A positive impact) Oil imports during December 2007 were valued at 5.96 billion dollars, u 23.78 per cent from 4.81 billion dollars in 2006.

Industrial Sector: The Needs Producer
An industry is the manufacturing of a good or service within a category  Secondary Sector, which is a type of economic activity involved in the manufacturing of raw materials into goods and products. Key Industrial Sectors  Primary sector  Secondary Sector  Tertiary Sector  Quaternary Sector  Quinary Sector

Industrial Meltdown: An Impact
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Recession trickles India’s Tech Industrial Outsourcing Industry on the edge- Wipro dismissed 2.5 percent of its work force Chemical Industry on the Decline A pang in the Employment

Banking Sector: The Money Circulator

A banker or bank is a financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money. conducting current accounts for his customers paying cheques drawn on him, and collecting cheques for his customers.

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The Money that Never Was
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You earn a salary of Rs.50,000 Buy a house worth 20 Lac Assume that you will sell the house at 40 Lac and make a 100% profit Not able to pay monthly EMI of Rs. 8,500 Sell the house at a loss File for Bankruptcy

“Money is the Creator of Profit and Destroyer of the same”

Weakening of the US Dollar

Modern Day Banking in Trouble
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Merrill Lynch and Citigroup – borrowed funds from Asia & Middle East to the tune of $6.6 Billion and $14.5 Billion respectively to cover financial losses. The Great Fall of Lehman Brothers: Banks lead fallers in London's worst day in years FTSE 100 index falls more than 5% Reserve Bank of India Raises Interest rates: Repurchase rate lifted to 8.5 percent from 8 percent, and cash reserve ratio to 8.75 percent from 8.25 percent.

Global Economic Slowdown: A Boon or A Bane?
 Boon:  India's provisional gem and jewelry exports increased by 22.27%  Manufacturing production is expected to increase 1.9 percent  Servive sectors grow faster during recession  Bane:

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American International Group (AIG) - $5 Billion loss More than 200 troubled banks are likely to be purchased before they reach the point of failure. A great hurdle for the IT Industry Result of Crashing Oil prices

First Hand Information
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Shasun Chemicals & Drugs Ltd, Chennai: “The high commodity prices during the 1st 10 months of calendar year 2008 did impact our margins focusing on cost management, working capital improvements and growing our research and formulation business We also expect the RBI to bring down the foreign currency volatility”

The Way Out of the Labyrinth- A Solution
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Increased subsidies by the Government for promotion of Exports Promotion of Increased Industries in Service sector Constant check on devaluation of Currency Don’t bite off more than you can chew Save at least 5% of the monthly income Wipe out credit debts

Conclusion
As a fall in the ditch would make us more cautious, similarly the Global Economic Meltdown has made the World Economy to arise, in spite of its drastic impact. The recovery of the affected sectors – Trade, Industry and Banking has been proved rapid and expected to ensure economic wealth.

By,
Vaishnavi.K Bhavani.K Sri Arabhi.G

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