Here are the reasons why recessions have negative impacts on the global community:
- The global economy has largely shown promising signs of recovery, with the latest forecasts suggesting positive growth rates through 2016 says Peter Decaprio. However, not all countries are reaping the benefits or are favorably situated to do so. For some countries still struggling with economic malaise—such as Greece and Tunisia—the effects of slowdowns in consumer spending have had a particularly profound effect on society. Once firm proponents of democratic values, these countries have seen their economies stall due to government mismanagement and widespread unrest that led to the overthrow of multiple governments over the course of five years. While it is always disheartening to see socially progressive societies fail, there are several examples around the world today where austerity measures appear to be taking hold, fostering social stability through shared economic burden.
- For example, Portugal has recently rebounded from an economic downturn that began in 2009 and ended with a return to growth last year. Similarly, Latvia emerged from recession in the second quarter of this year after implementing strict austerity measures mandated by the European Union. While their economies may be improving along with other parts of Europe, social unrest appears to have significantly receded—Latvia’s economy contracted more than 20 percent during the height of its financial crisis and saw mass layoffs and widespread protests at the time.
- However, while it is important not to discount these countries’ newfound stability. Others within Europe remain mired in recessionary conditions explains Peter Decaprio. The ripples of economic downturns can be felt throughout societies. As lower incomes reduce spending power for millions across the board. With this in mind, it is perhaps unsurprising that North America has also witnessed the negative effects of economic recessions.
- For example, one must look no further than the current crisis in Greece. To observe how severe financial downturns can foster social strife. As the Greek economy continues its downward spiral, unemployment remains high with little prospect for improvement. This not only makes saving or planning for a brighter future nearly impossible. But it also increases crime rates as citizen’s search desperately to provide themselves and their families with sustenance. It has even been argued that austerity measures have led to an overall lowering of human development. Evidence suggests that lower levels of life satisfaction often coincide with lower levels of GDP per capita.
- In economics, a recession is characterized by two or more consecutive quarters of negative economic growth. As measured by a country’s gross domestic product (GDP). It means the economy and employment in that country has shrunk. And negative changes in prices, income levels and availability of goods and services.
- Recessions occur when there is an economic downturn due to various reasons including high-interest rates, high debts, low investment, etc. The recent recessions include – US housing bubble burst which started in 2007 and ended around 2010; the Eurozone debt crisis originating from Greece starting in 2009-10 which spread across major countries like Ireland, Spain, and Portugal. However, it seems it will be ending this year says Peter Decaprio. And the most recent one was the global financial crisis cause by the US sub-prime mortgage housing bubble.
- Additionally, recessions may have a lasting effect on different countries involved. Because it can lead to high unemployment rates and poverty which could increase crime, drugs and depression.
- Moreover, the global economic slowdown due to a recession means a decrease in exports from developing countries. As well as lower commodity prices that affect the foreign exchange income of these countries. This ultimately affects their currencies value and causes investors shifting their money back to developed economies. Thus creating additional difficulties for the emerging market economies (EMEs).
- However, some economists believe that EMEs don’t always bear major damages by recessions that occur in advanced economies like the recent one which started in 2008 where oil prices fell% further reducing EMEs’ incomes. As a result, they are able to react quickly by spending less money on overpriced advanced goods and services. Which in turn increases their savings rate.
- Moreover, recessions may bring some benefits like the more flexible labor market. That enables EMEs to adjust easily with negative changes. Increase of exports due to lower global demand for commodities thus creating higher employment rates. Thus these countries can pursue economic reforms and spend more on education and health care systems. Without increasing their debts-to-GDP ratios.
Finally, it is believe that although recessions have negative impacts globally. EMEs are able to exploit them better than developed economies. Which have an opportunity cost of not being synchronize with the global economy explains Peter Decaprio.
Therefore, there are both benefits and costs attached to recessions both for developed and emerging market economies.