Recession impact on stock market
A recession will typically be characterised by high unemployment, falling average incomes, increased inequality and higher government borrowing. The impact of a recession depends on how long it lasts and the depth of the fall in output.
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The great recession of has shown many of the negative impacts of recession. Not everyone is affected equally by a recession. A fall in GDP will cause a rise in unemployment.
In this recession, unemployment in the UK has risen to over 2. However, in Europe, many countries in recession have seen a catastrophic rise in unemployment.
Firms will also try to reduce costs by keeping wages low. Some workers especially temporary workers without contracts may see wage cuts This has been a key feature of the recession, also aggravated by rising costs of living.
Another cause of lower wages is under-employment. Some workers may keep their job, but see their hours cut. Rather than working full time, they become part-time workers e. This means that the rise in unemployment may be muted, but many workers see substantial falls in effective income.
Because of falling tax revenues and rising welfare payments automatic fiscal stabilisers a recession tends to cause an increase in the budget deficit, and total government debt. Many countries saw a sharp rise in the budget deficit post credit crunch because they relied on tax revenues from property and the finance sector. The fall in the property market hit tax revenues harder. VAT receipts tend to be less cyclical.
A budget deficit may also increase because the government decide to pursue expansionary fiscal policy and attempt to stimulate economic activity. Usually in a recession, government bond yields fall. This is because in a recession, saving tends to rise and people demand the security of bonds. This happened in US and UK between and However, in the Eurozone, recession aggravated and worsened their bond markets. The depth of the recession meant tax revenues were falling dramatically.
Markets felt that the scale of the recession meant that the debt to GDP ratios were rising at unsustainable rates. Diverging bond yields showing that recession could cause both rising bond yields and falling bond yields. Even attempts at austerity — cutting government spending failed to appease the bond markets.
Further austerity caused a deeper recession — and the twin burden of falling GDP and falling tax revenues. Japan has higher debt, long recession and low bond yields.
A recession can definitely aggravate a debt crisis and make it unsustainable. However, there needs to be other factors as well. A recession leads to lower investment, and therefore can damage the long-term productive capacity of the economy. If the recession is short, this lost output may be quite limited — economies can bounce back. But, in a prolonged recession, this lost output becomes greater.
See impact of recession on trend rate of economic growth. Unemployment can leave lasting negative impacts. Firstly, unemployment is very stressful and can damage the persons morale, and even health. Areas of high unemployment tend to experience more social problems. High unemployment can be factors in creating social instability free monte carlo simulation excel template as riots.
Mass unemployment in Spain and Greece is threatening the social fabric of the countries. The unemployed lose the opportunity to gain skills and on-the job training. Long-term call of duty 4 modern warfare multiplayer gameplay ita can make it harder for the worker to gain a job in the future; it can even cause people to give up and drop out of the labour market completely.
Facebook RSS Follow economicshelp Basket. Tejvan Recession impact on stock market September 11, economics. Unemployment Not everyone is affected equally by a recession.
Some firms will go bankrupt meaning all workers lose their jobs. In an effort to reduce costs, firms will cut back on hiring new workers. Therefore, unemployment often affects young people the most. Rise in Spanish Unemployment. Source ECB Lower wages Firms will also try to reduce costs by keeping wages low. Taxation Governments will see a fall in tax revenue as a result of a recession.
Firms make less profit, therefore government receive lower corporation tax Workers receive lower income, therefore government receive lower income tax Lower house prices, and fewer housing transaction — lower stamp duty Lower expenditure, leading to lower VAT payments. Government Spending Rising government spending on welfare payments, such as unemployment benefits and income support. Rising Bond Yields Usually in a recession, government bond yields fall.
Japan has higher debt, long recession and low bond yields A recession can definitely aggravate a debt crisis and make it unsustainable. See impact of recession on trend rate of economic growth Impact on Workers Unemployment can leave lasting negative impacts.
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