Before studying the impacts, we should be well aware about the term “recession“. It is an activity that mainly results in the slowdown of the economy. This is the phase various activities such as the investment, income, employment, production, and even the expenses fall short. And then the economists say that if this situation continues for two quarters and more, then one can say that recession is gaining its height which is dangerous for economic stability. In the past, recession was at its height in the period of August 1929 extending to March 1933.
With recession, you can see gruesome consequences, the most noticeable of which are GDP and investment falling down and rise of inflation, we can see that businesses are definitely impacted. There is revenue decrease and even the profits start to decline, resulting in the firm to cut down their production level, reduce the manpower by laying off the employees, and canceling the process of hiring. Furthermore, the organization may also put a stop to their marketing process for saving the money. They may start to buy their material from the other vendors that are ultimately impacting the other businesses in the chain.
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Recession impacts the country’s economic growth –
1. Credit cycle of the organizations – Due to the recession, the creditors will have to pay debt untimely and thus the company will receive the funds back but slowly. And then there are times when the creditors would pay either the partial amount or no amount at all. This directly affects the goodwill of the company. The solution to this problem would be restructuring the credit policy or opting for refinancing.
2. Inflow of cash is reduced and there is a decrease in the prices of the stock – Recession can also cause the stock prices to reduce and that is the first and foremost reason for the dissatisfaction of the shareholders. If there is any fall in the stock prices, then financial conditions of both the employees or the shareholders affects greatly. As the nation would have very limited cash reserve, they believe not in investing in the domestic companies.
3. Lay-offs of employees – There are firms who want to save money and they reserve it. They due to this reason lay off their current employees. The rest of the team of employees that is still working will have to keep up the process of productivity as intact as it was before. And this is the reason that the number of workers that are working full time will be reduced and more workers that are ready to work part time increase.
4. There is a substantial decrease in GDP – any revenue or profit when decreases due to recession, also results in lessened number of products that are produced in the factory.
5. Hampered quality – As the companies work to save money and they are not keen on investing a good sum in the process of production, then the quality of any material suffers a lot. This also involves spending the money in the process of research and development.
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