Global recession can be defined as a time when there is a slowing down of economic growth globally. According to the international monetary fund, a global economic growth that is below three percent is indicative of global recession. Based on this criterion, it is estimated that the world has gone through four periods of economic recession dating back to 1985. This recession is attributed to the general declines in the economic growth of individual countries. According to Shiskin, J (1974), country that has its gross domestic product declining for two consecutivequarters, is deemed to be undergoing a national recession.
The main reason for the declines in the global growth has been mainly attributed to the fact that most developing countries have been recording increases in economic growth. On the other hand, the developed economies have been rerecording a decline in their GDP growth rates over a long period of time. A global recession is expected, under normal circumstances, to re-occur after a period of between eight and ten years. This article will discuss the 2007 global recession. Included in the discussion; are the effects of the recession, causes and how the countries have struggled to mitigate the effects of this period (Allen, 29th Jan 2009).
There have been several explanations that have been advanced to explain the real causes of the global recession that was witnessed in 2007. To understand this better; the focus was directed to public monetary policies, especially in the US, and the role of the financial institutions in the countries. The first thing that is believed to have caused the downward trend in economic growth especially in the US is the competition. The competition was witnessed between the money lenders as they tried to edge each other in terms of market share and revenue. The main reason advanced for this is the lack of regulation in the money lending business. For instance in the US, the decline was brought about by the collapse of the securities related to mortgages. This was due to the availability of a lot of cheap money that arose from the reduced interest rates on the loans by the federal banks. This led to a lot of money being in circulation. Although this money was available in large amounts, the boom could not be upheld for long (Allen, 29th Jan 2009).
Another reason advanced for the global recession during this period, is the state of debt of the economy of the US. It is believed that countries that have large debt have high possibilities of drowning in the recession. This is mainly through making of the recovery process to be weak. For instance, the US has been experiencing a high debt that has gone up to three hundred and fifty percent of the of the country’s GDP. This has greatly been attributed to the discrepancies that exist in the wages of the citizens. The US has an imbalanced wage structure. In this country, the middle class have their salaries constant, while most of the country’s wealth is held by the higher class who are few in number. This then means that most people will resort to credit in order to sustain their families and get good standards in life. Another factor that led to global recession was the inability of the central banks to regulate the activities of the private banks in the economies. In the US, this lack of control came after the passing of the National Bank Act in 1893 (Allen, 29th Jan 2009).
There were several effects that accompanied the global recession in 2007. First, there was a decline in the amount of trade and goods exchanged especially up to the later part of 2008. It is also believed that, during this period, the global gross domestic product went on a downward spiral with an annual decline that had never been experienced since the one experienced in 1950s(Read, 2009).
Another thing that suffered a blow was the capital investment with reports indicating that there was a steady decline in this sector. This decline could only be matched with that experienced after the war in 1957.For instance in 2009, the collapse in the property investment was so bad that it was collapsing at an unprecedented rate of twenty three percent per year. Another thing that suffered during the global recession was the decline in income among the people. As compared to 1968, when an average worker was earning 32,844 US dollars, the earnings declined to 32,137 in 2010. The employment also declined at a percentage of about six percent as compared to the situation during the Great Depression. This state of unemployment has led to an increase in the numbers of disillusioned job seekers. This consequently leads to the increase in the numbers of people registeredunder the federal system, to be supported by the government (Read, 2009).
Another notable area that has fallen prey of the global economic recession is the political stability of most countries. For instance, in the US, there are efforts by the country’s intelligence system to ensure that the international instability that comes with global recession does not affect the country’s security. According to the business week, the global recession has posed a lot of political instability that needs to be dealt with decisively. It was during the global recession period that a lot of uprisings were experienced throughout the world. For instance in Iceland, elections had to be organized two years earlier than the expected date to cushion against the rising demonstrations in the country (Ewing, March 10, 2009).
The demonstrations were called by the people in reaction to failure by the government to mitigate the economic crisis. Similarly, in Greece, the people were up in arms against the government’s failure to tame the recession. They did this by freezing operations learning facilities, airports and other essential services in the country. Other countries that have experienced uprisings due to global recession include Moscow, China, United States and Spain (Traynor, 31st Jan 2009).
From the discussions above, global recessionhas a variety of causes and effects on the economy and the people at large. For countries to deal with the devastating effects of global recession they must come up with sound policies. According to the IMF recommendations(September 2010), global recession can best be handled by reducing the number of unemployed people. This can be done through increasing the avenues of job creation like educating the unemployed to get gainful employment. Each government should make job creation a long term avenue of economic recovery (Read, 2009).
Allen, P(January 29th, 2009). Global Recession – Where Did All The Money Go?
The Guardian. London.
Ewing, J (March 10th, 2009). Economic Woes Raising Global Political Risk. Business
Read, C (2009). Global Financial Meltdown: How We Can Avoid the Next Economic
Crisis.MacMillan publishers. New York.
Traynor, I ( January 31, 2009). Governments across Europe Tremble as Effects of Global
Recession Prompt Angry People to Take tothe Streets.The Guardian. London.