The Effect of the World Financial Crisis on an Economy
5/13/2009 3:03:26 AM -
The Financial crisis in the United States market and the world meltdown is known as Global recession, it has shadowed the world economy with a varying degree of recessional impact. The effect of the crisis is evidenced from the very fact of falling Stock market, lack of jobs availability and companies following downsizing in the existing available staff and cutting down of the perks and salary corrections. Globally the financial sector sacking the existing base of employees in high numbers in US the major example being CITI Group.
In the globalized market scenario, the impact of recession at one industry peculate down to all the linked industry and this can be truly interpreted from the current market situation which is faced by the world since approximately 2 month and still the situation is not in control in spite of various measures taken to fight back the recession in the market. The badly hit sector at present is the financial sector, and major issue being the "LIQUIDITY Crises" in the market.
In-spite of the various measures to subsidise the impact of the recession and cut down the inflation present nothing really sound have been done. Various steps taken by World Leaders to curb the present recession in the economy and counter act the prevailing situation. The sudden drying-up of capital inflows from the World Bank which were invested in Indian stock markets for greater returns visualizing the Potential Higher Returns flying back is continuing to challenge liquidity management. At the heart of the current liquidity tightening is the balance of payments deficit, and this deposit move should help in some small way.
To curb the liquidity crises the financial institutions will continue to initiate liquidity measures as long as the current unusually tight domestic liquidity environment prevails. The current step to curb these being lowering of rate and reduction of PLR.However, the big-picture story remains unchanged - all countries in the world with current account deficits and strong credit cycles are finding it difficult to bring cost of capital down in the current environment. India is no different. New measures do not change our view on the growth outlook. Indeed, we remain concerned about the banking sector and financial sector. The BOP- Balance of Payment deficit - at a time when domestic credit demand is very high - is resulting in a vicious loop of reduced access to liquidity, slowing growth, and increased risk-aversion in the financial system.
In total the recession have turned down the growth process and have set the minds of economists and others for finding out the real solution to sustain the economic growth and stability of the market which is desired for the smooth running of the economy. Complete industry is in dolled rum situation and this situation persist for a longer duration will create the small business to vanish as they have lower stability and to run smoothly require continuous flow of liquidity which is drive from the market.
In present situation down fall in one sector one day leads to a negative impact on the other sector thus altogether everyone feel the impact of the Financial crises with the result of the current recession which started in US and slowly and gradually due to linked global world have impacted everyone.
Solution for the problem still remain at the top of the mind of every one, still everyone facing the impact of recession but how long is the major question which is of great importance.
Author: Paul Rex Danquah