Global Recession and Its Impact on Pakistan Economy

Topics: Recession, Macroeconomics, Financial crisis Pages: 7 (2549 words) Published: January 9, 2013
Global recession and its impact on Pakistan economy

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There has been speculation that American would lead global recession and it could impact the global economy. IMF also predicted that in 2008 global growth would fall from 4.9 percent to 4.0 percent. US economy suffered thousands of layoffs and the biggest retail sales dip on record. Strong economies as that of UK, Germany, France and the new emerging one’s like China and India also fell pray to this recession. Rising prices of oil and different commodities along with the credit crunch majorly contributed to the recent turmoil. The crisis of the sub-prime mortgage market also played its part. The impact of this slowdown on the developing countries might not be as severe on the developing countries as to the developed countries but still there would be spillovers. So far Pakistan has escaped the recent economic turmoil emerging from Unites States and its main reason is that our economy is too week to shape in global matrix. Though Pakistan economy has not been affected up till now, the investors, driven by fear are taking there investment out. This is leading to the appreciation of a rupee as well as the depletion of foreign reserves which is causing further problems for Pakistan. Whether we are entering a recession or not is no more a question. The government must take proper fiscal measures for the short run and long run to overcome this slowdown and stabilize the economy. Keeping the check on the oil prices is the most important issue and should be carefully handled in the world politics.

A slowdown or fall in the rate of economic growth; a recession is defined by the US National Bureau of Economic Research as a decline in gross domestic product in two successive quarters. A severe recession is called a depression. Recession is associated with falling levels of investment, rising unemployment, and (sometimes) falling prices. The economy goes through various periods of activities and these activities can be summarized in the business cycle. Its different phases define various characteristics in the economy. For example in the expansion phase, production along with employment, wages and business profits increase. During the contraction or recessionary phase, employment level in the economy falls, and production level, wages and business profits follow suit. A peak marks the end of the expansion phase, while a trough marks the end of the contraction phase and the beginning of the expansion phase. The contraction phase of the business cycle marks many adverse effects on the economy amongst which the most important are unemployment, bankruptcies, unwillingness/inability of banks to lend money which leads to credit crunch, deflation, reduced sales which means reduced profits, foreclosures as recently seen in the American economy and stock market crash ( also widely debated nowadays ). The Great Depression that began in 1929, for example, was the most widespread depression in the 20th century. Slowdowns in the economy are a regular phenomenon, but the magnitude of the recent predicted depression is great. The IMF estimates that global recessions seem to occur over a cycle lasting between 8 and 10 years. During what the IMF terms the past three global recessions of the last three decades, global per capita output growth was zero or negative. In January 2008, the IMF predicted that 2008 global growth would fall from 4.9 percent to 4.0 percent. There has been speculation about an American lead global recession and it could impact the global economy. Given the fact that today’s economies are interconnected it is likely that the repercussions of the recent slowdown would extend to all parts of the world. Although the impact on developing countries might not be as severe as it is on the first world they are nonetheless likely to feel the blow to some extent.

A Recession in Progress and its Impact
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