Top 5 major Economic Effects of Recession on Economy
There is a general economic decline during recession. The economy has a tremendous setback. The purchase of the people comes down due to low salaries or lack of sufficient income. This results in slump in market with goods and services not being availed of by people. Production slows down and in turn prices go up. In fact during recession, many firms are forced to sell their products at throw-away prices and suffer from losses as a result.
Recession is something to be dreaded by producers as well as consumers. Both suffer during these hard times. Both need each other. In case, consumers do not have the purchasing power, then production suffers. Less production means less profits for producers who will find it difficult to run their business houses.
The economic scenario during recession is pathetic. It is interesting to note how the economy suffers during such traumatic times as it affects us all.
Recession impact on the economy
- Slump in the market – Goods and services are difficult to be sold as the purchasing power of the people comes down.
- Stock prices come down – Investment suffers. The industrial production is badly affected as investors avoid investing in companies that might suffer losses during recession. Bigger companies are able to withstand the setbacks but smaller companies have a tough time and some may end up closing down.
- Increase in unemployment – People are thrown out of jobs. They are left in the lurch. They are unable to meet both ends. Many goods and services are not within their reach.
- Depression – Recession causes depression if it persists for a long time. Negative trends are visible in the stock market and rapid unemployment is there. Companies need to be bailed out by the government. Public spending suffers a set back.
- National debts on the rise – Increase in national debts means less money can be spent by the government on development. Money gets diverted in bailing out companies. The recent recession in the U.S. indicates how banks have to depend upon federal aid for their survival. Taxpayers money is being spent in giving these banks a boost.
Recession is definitely bad for economic growth and development. It slows down the economy. Investors hesitate to invest, and producers are unable to churn out products. Consumer lack the necessary money due to unemployment and cannot therefore buy goods available in the market.