The Causes and Effects of Global Recession

The causes and effects of global recession. Global financial crisis, increasing for a while, began to show its results in the mid of 2007 into 2008. Worldwide stock markets have subsided, financial institutions have dropped and governments in even the richest nations have had to develop packages to assist their financial organizations.

Recession is defined as a slowdown of activities in the economy over a time.The major effect of recession is Inflation as well as currency crisis. A decrease in income may be another effect of recession in the economy. As persons try to save more, this reduces sales therefore there is a result of no profits. Another effect may be increase in mortgage rates. At the time of recession, lenders tend to increase rate in order to cover their losses. While in recession employment occasions are reduced since companies tend to cut down on these opportunities thus leading to unemployment in the economy.

Countries around the world are being driven into recession as the economic downturn deteriorates.In Europe, Germany, Italy, Ireland and Denmark they have all suffered two consecutive quarters of economic decline the first is the technical definition of a recession and secondly it was already present before. Japan joined the list as it surprised economists and reduced in size in the ending of the year. The UK economy shrank in the third quarter of 2008, and is expected to contract through most of 2009. Many are expecting a new world order with economic power shifting to countries in the east who are better placed to weather the downturn.However, developing economies rely on the west to buy their goods, so recessions in the US and UK will also hurt them.

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This was according to http://www.guardian. co. uk/business/interactive/2008/oct/08/recession.creditcrunch The effects of recession may be seen as bankruptcies, deflation, a reduction in sales, crash in the stock market and most importantly unemployment. Causes of global recession may be because of the sub-prime lending crisis and rising of oil prices. The main effects of recession are a decrease in profitability, decline in the stock market and difficulty in borrowing.The financial crisis from 2007 to present is a result of the banking system in the United States.

This has resulted in the disintegration of financial institutions, bailout of bank by national governments and slumps in stock markets worldwide. In various areas, housing markets has also suffered. Although the credit crunch in the US was costing America and Europe immense job losses, financial professionals were influenced that Africa will NOT BE unharmed by the global financial crisis because of where it is located. The impact of the US credit crunch on Africa was narrow as a result of the restrictions of ownership.Due to the lack of trade finance is causing stockpiles to build up at Southern Africa’s coal port, because of this, coal trade has fallen drastically. Africa was unharmed for some time. Nevertheless, when the recession strengthened in the First World, the effects were being felt.

According to reports people working in the construction, automotive, tourism, finance, services and real estate sectors will be mostly affected during these hard times. Africa’s export and import industries have changed due to the credit crunch in the US.Africa depends heavily on exports of its raw commodities such as oil and coal, and since the US credit crunch the countries that purchases Africa’s exports have been unable to retrieve credit. This has caused a great fall in exports and consecutively resulted in deceased prices. Credit crunch meaning a scarcity of money, declining house prices which is related to a lack of mortgages and credit crunch and cost push inflation resulting in decreased income are some factors that push an economy into recession. A decrease in world GDP occurred in many countries, specifically in developing countries.Imports have also declined significantly in importing countries.

This was obvious in countries such as China, Taiwan, Mexico, Egypt and Russia. it was stated that GDP fell to 3. 8% in the U. S. The impact of recession on employment may not be felt for some time. Investigation in Britain shows that low-skilled, low-educated workers and the immature are in a weak position to unemployment in a downturn. It took Britain five years for unemployment to go back to its initial levels.

From 2000 to 2003, the Federal Reserve lowered their target rates. They then raised the funds rate significantly between July 2004 and July 2006.This added to an increase in number of years to the adjustable-rate mortgage rates and made it more expensive for homeowners. As a result, this may have also contributed to the deflating of the housing bubble. Gross Domestic Product declined at an in the last two years in the United States. When GDP collapses, economic growth will also plunge. This is as a result of fewer goods being manufactured and therefore the rate of exports will reduce.

It is said that when exports decrease, it will not have sufficient funds to accommodate any growth in the economy what so ever.As a result in the decline in GDP, employment rate will sooner or later begin to drop. As a result of the credit crunch, consumers have less purchasing power therefore they are consuming a lot less. Due to this, employers are making a minor profit and as a result they are not capable to pay their workers. Now, because of this they tend to start to cut down on their staff members. The employment rate in the U. K.

for a period of three months was recorded as the lowest since many years aback. The number of people employed that was unemployed was unimaginable although there were a number of job vacancies.This then eventually increased to new heights. These increases were mostly due to the industrial sectors. In the US, a rumble in the housing segment was driving the economy to new heights. This is a combination of little interest rates and hefty inflows of overseas funds helped to create easy credit situation where it became a lot easier for people to get loans. As more people are able to obtain loans, the demand for houses increased as well as the price for the house.

The main aim of most lending institutions and credit firms was to give loans to scores of potential customers as possible.Inspecting the customer’s repaying capacity was overlooked in lots of cases. As a consequence, many people with a low level income as well as bad credit record category were given housing loans in disregard to all theories of financial caution. This type of loan was considered to be sub-prime loans as the repaying of the loan was doubtful. In the age of globalization, no country can remain detached from the variations of global economy. Intense failures suffered by major International Banks will affect all countries of the world.As of now India is facing heat since their market shares are declining daily, their money is declining against money and their banks are facing brutal crash crunch resulting in scarcity of liquidity in the market.

A global depression is most likely to be a consequence in the fall in demand of all types of consumer goods. As a result, in 2007-08, India sold a smaller number of goods to overseas consumers. A fall in demand is likely to affect the growth rate as well as export rates. The global downturn continues to have intense impacts for developing countries.Australia is dedicated to responding efficiently to this crisis and civilizing the elasticity of countries and their ability to handle shocks in the mare future. Australia responded to this recession by the prevention of poverty reduction and sustaining programs that generate employment and re-establish economic growth. During 2008 and 2009 the global economy was shaken by towering food and fuel prices.

Global economic growth deteriorated in the year 2009. The crisis also produced a significant change in the situation of expanding countries. Economic growth in developing countries in 2009 dramatically decreased compared to that in 2007.Declines in foreign direct investment, export revenue and payments have slow down economic growth and employment in developing countries. There is development towards plummeting poverty and hunger. Extensive job losses in rural areas, export-oriented sectors has enlarged unemployment and impelled more workers into low-income careers. This impact has been a result of recession.

Although Japan has not suffered from a housing crumple or toxic assets, its financial system has been hit rigid by the crisis than the US or EU. Japan’s reduction is as a result in the fall in external demand.

THE EFFECT OF THE CRISIS ON TESCO

Here http://www. corporatewatch. org. uk/? lid=252#sum stated that Tesco, known as Britian’s leading as well as most beneficial supermarket is located in China. As in the current years, Tesco and its biggest rivals have faced disparagement for mistreating their position as a monopoly and adding to some of the main internal and external problems outbreak in society today.

Some of these include replacing small farmers with industrial monoculture agricultural estate whereby the wages ahead are lower and their labor privileges. As time went by Tesco took over the leading position.In 1995 Tesco was the largest supermarket and became the leader a few years after. This was foreseen as an achievement. In the year 2000, Tesco successfully launched a website. In 2001, customer satisfaction was taken into consideration as in various stores, enhancement services was implemented. Tesco became the primary merchant in the UK.

They also reached to new heights. The entry to Malaysia was made in the upcoming year. As all firms do, they offered speciality products which were made for diabetic customers. The business began storing electronic products of all types, as well as furniture in its stores.During this same year the company then further introduced garments mainly in its UK stores giving customers a wider range of products. As years went by Tesco made entries to various countries. Entry was made into China.

This time where their product was launched they developed and promoted their products. The website which was launched was available to download music as well. In the year 2005 the existence in Taiwan’s was done. As the years went by Tesco progressed and developed slowly. After a sum of three years, plans were made to establish a new business to be made available in India.According to market studies in 2004, Tesco’s gap was sealing. It was known as the fourth major supermarket in the world existing presently.

It is said that Tesco operates countless stores in various countries around the world and employees more than hundreds or persons. They used their knowledge to compete against Wal-Mart as by lowering prices so customers would turn to them instead, their increasing sales and consumer awareness and needs. Tesco is known that the major aim of a firm is to maximize profits. However, it is the belief of many that the firm cannot achieve its full potential if it cannot achieve its full growth potential.Therefore in this case Marris’s theory does not make any economic sense. For a firm to be able to maximize shareholders and managers wealth, it must be able to grow and advance enough. Also, since the aim of the modern economic world is globalization, if a firm cannot meet its fullest potential it can be highly compatible with the global market and a wider variety of preferences for trade and investment.

According to http://www. dailymail. co. uk/news/article-1172251/Prices-profits-Tesco-puts-success-discounts--shoppers-pay-staple-goods. html sales progress at Tesco has plit fifty-fifty due to Britain's major retailer loses patrons to financial plan competitors, together with the thriving German discounters. Although the value of sales through Tesco's stores in UK showed a twelve-monthly growth of 2% within the past three months, it was its worst figure in a long time. The business has react d by establishing a modern recent discount choice, which is bringing inhabitants through the doors nevertheless delivering inferior sales values and profit margins.

Tesco had a huge lost from customers due to them switching to Asda while Aldi and Morrisons made a reasonable profit.This was due to switching of customer loyalties. Figures proved that Tesco's leading grocery competitors are doing far more damage to it than formerly deliberated. Tesco insisted that its recently launched brand was to blame for knocking a few percentages of UK sales figures. Selling experts suggested as a result of the values, Tesco is fighting a wrong battle. They should be more concerned about their customers’ preference and not their competitors. It was reported that Tesco is pleased with progress being done but at the same time they are pragmatic about the climate in the economy a present and the twist it is putting on the customers.

The director of Tesco stated that the growth of sales in UK was the slowest since the recession in the early 1990s. Although deflation in a business causes losses it is a good decision since customers respond to it. As of the expansion of the business in the US, there is a halt. http://www.tescoplc.com/annualreport09/financialstatements/summary_financial_statement/summary_group_income_statement/ Stated that VAT increased and that exchange rates as well as sales increased. It stated a reduction of inflation and growth rate which impacted on an increase in sales due to customers trying to save their salary.

Due to these trends, Tesco took advantage of it by slicing their prices and making products more affordable. With the increase in productivity and proper expense management the result of this there was a growth in profits despite the challenges. This website http://industry. bnet. com/retail/10001528/recessions-impact-on-fresh-easy-drags-down-tesco-results/ stated that in the financial year ending February, Tesco lost a huge amount of money in pounds. After bookkeeping for the exchange rates it was shown that an unbelievable amount was due to this.It then was forecasted that an enormous loss occurred in the US.

Also it was said that the total sales amounted to 208 million pounds, due to stores having an advantage because of a sale. As stated according to http://www.bbc. co.uk/blogs/thereporters/robertpeston/2010/01/tesco_and_recessions_end. html Britain’s largest merchant benefited from an unexpected growth. Sales in the UK rose a remarkable 8.

3% - and 4. 9% per unit of selling space, adjusted for the VAT changes and excluding petrol. This was Tesco's best performance for three years. It seemed as doe recession did not have any impact on Tesco.As prices goes up it is stated that other stores are raising their prices. By supporting the credit crunch, this may be as a result of elevated numbers of unemployment. As one of the largest and fastest growing merchants more jobs will be accessible with TESCO therefore helping to trim down the levels of unemployment.

A PESTLE analysis is therefore useful in order to keeping TESCO up to date with their environmental surroundings for example by identifying in advance that route to which they are heading for a recession would have helped them to plan in advance. This was stated according to http://www. odelanswer. co. uk/business/help/pestle/tescos. php. it also stated that a PESTLE analysis is essential to the development and the success of TESCO’s also including the day to day management of each store in line with strategic decisions.

By lack of knowledge of what external factors affect the organisation, it is complex to control the business in a well-organized manner. http://www. independent. co. uk/news/business/analysis-and-features/recession-slows-the-tesco-juggernaut-1048858. html states that the biggest retailer, in UK had a huge downturn of sale due to recession.However, Tesco is being battered by brutal competition from rivals, Asda, Morrisons and Aldi, which are apparent to be stronger on price.

Thus far, the government’s reaction is mainly heavily dependent on measures agreed to before the crisis began. Negotiating a framework for a unified response by business, government and trade unions, with an emphasis on avoiding, where possible, retrenchments. Interest rate cuts. Proceeding with a three-year infrastructure investment programme. Proceeding with an expanded public-works programme was stated according to http://www. amandlapublishers.co.a/home-menu-item/156-the-impact-of-the-global-recession-on-south-africa. In accordance to http://www. bloomberg. com/apps/news? pid=conewsstory&tkr=TSCO:LN&sid=aB2XzUDCyYSQ. It stated that across all parts of their strategy - UK, International, Non-food, Services, businesses are now physically powerful than it was before the recession. Various procedures, developed market shares, strategic performance and a strong organic development programme, were done to accomplish profitable growth. In the United States, Fresh & Easy has been making tremendous progress, despite lengthened weakness in the economies.

Customers are now appreciating the range of fresh food being prepared and the friendly services offered. As of the new businesses, we are become accustom and cultivating feedback. With the upgrading development to our range implemented and with the number of growing stores, which was launched at media campaigns – in is said to offer both high quality and low prices. With a combination of increased customer awareness and the improvements we have made in the store helped to drive stronger positive sales growth throughout the year. As a result of assistance from the government, there was much of no assistance.They insisted that retailers would benefit only from a re-evaluation of business rates as they have been negatively affected by tumbling property values. He also suggested that a cut in the Uniform Business Rate multiplier should be done to avoid businesses suffering rate increases in a recession.

The multiplier is reviewed annually and goes up in line with inflation. It was also disclosed that business rates should be reviewed since they do not reflect the changing nature of businesses in which the value ofproperty is no longer profitability as stated according to http://findarticles. om/p/articles/mi_7996/is_2008_Nov_12/ai_n39096759/.

CONCLUSION

In closing global recession has a huge impact on businesses. As a result Tesco was one of the companies affected by the recession.

REFERENCE WEBSITES

1. Tesco.com Tecso’s History [Online] Available at: http://www.tescoplc. com/plc/about_us/tesco_story/ [Accessed on 28th April, 2010]
2. About Tesco [Online] Available at: http://www. cn. tesco. com/en/aboutus/aboutus_history. htm [Accessed on 28th April, 2010]
3. Tesco’s weekly sales growth [Online] Available at: http://www. freshplaza.com/news_detail. sp? id=62193 [Accessed on 28th April, 2010]
4. Government assistance towards Tesco [Online] Available at: http://findarticles. com/p/articles/mi_7996/is_2008_Nov_12/ai_n39096759/ [Accessed on 1st May, 2010]
5. Tesco Plc [Online] Available at: http://www. bloomberg. com/apps/news? pid=conewsstory&tkr=TSCO:LN&sid=aB2XzUDCyYSQ [Accessed on 1st May, 2010]
6. The impact of global recession [Online] Available at: http://www. amandlapublishers.co.za/home-menu-item/156-the-impact-of-the-global-recession-on-south-africa [Accessed on 1st May, 2010] Tesco’s recession [Online]

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