Periods That Might Be Classified as Global Recessions but Cannot Be Reasonably Called Recessions
economy could slip into recession sometime in the next 18 months; this risk is due largely to excessive interest rate increases in recent years and a likely fading of fiscal stimulus. The Trump administration has proven neither nimble nor smart when it comes to macroeconomic management. In particular, its attempt to dismantle many of the constraints put on financial sector speculation following the Great Recession is clearly a threat to future macroeconomic stability.
On the other hand, the sophistication of its markets and investment efficiency determine how the financial services industry is affected. According to research, the United States would have suffered limited shocks to its economy, if the 2008 recession had not originated within its borders. This is mainly because it has limited trading relationships with the rest of the world. On the other hand, a manufacturing powerhouse like Germany would have suffered regardless of the robustness of its internal economy because it has vast number of trade linkages with the rest of the world.
Lower incomes and wealth levels may mean that new business will find it more difficult to find individual investors, and credit constraints may limit borrowing from private banks. According to a recent report by the U.S. Small Business Administration (SBA 2009): “The credit freeze in the short-term funding market had a devastating effect on the economy and small firms. By late 2008, the normal production of goods and services had virtually stalled.” A survey of loan officers also suggests that standards for small-firm commercial and industrial loans were significantly tightened. Not only do recessions make it more difficult to start a new business, they also can undermine new start-ups that are struggling to get by. There may be many new businesses (and business mod els) that would be successful in ordinary times but are unable to succeed due to a lack of demand or credit. In 2008, 43,500 businesses filed for bankruptcy, up from 28,300 businesses in 2007 and more than double the 19,700 filings in 2006 (Romer, P. 1986). The recession’s impact can also be seen in initial public offering (IPO) activity. Firms use capital raised from IPOs to expand activities. In 2008, there were just 21 IPOs for operating companies, down from an annual average of 163 in the four years prior (Ritter 2009). Furthermore, the median age of IPOs in 2008 was slightly higher than in past years, meaning that it is the more-established firms that are receiving the capital influx.
economy contracted by about 30 percent over a four-year period. Although the latest recession is obviously severe, its output cost was much smaller than that of the Great Depression.
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