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How Economic Recession Influences Investors' Behaviour
Author: Victor Gryazin
Dear Clients and Partners,
This overview describes what economic recession is and why it happens. We will analyse a case of global economic recession and see some advice concerning how to behave during a crisis.
What is economic recession
Recession is a serious and lengthy decline of economic activity, characterised by a decrease in production and employment that results in falling of income and spending of households. This phenomenon may last over several months and is usually followed by a decline of the GDP.
Experts from the US National Bureau of Economic Research (NBER) have given their own definition. They state that recession is a significant economic decline that starts at the high of preceding growth and ends at the low of subsequent falling.
The decline of economic activity must be quite deep and lengthy to have the right to be called recession. It may last just several months but it will take the economy years to get back to the previous peak.
Reasons for and signs of economic recession
Multiple economic theories struggle to explain why and how economy escapes a lengthy uptrend and starts falling. For example, abrupt and stable growth of oil prices due to a geopolitical crisis may lead to growth of spending at the global market and provoke a global economic recession.
According to the conclusion made by the US Congress Special Commission, the economic recession 2008-2009 was provoked by such factors as mistakes in financial regulations and in corporate management, excessively high debts of households, wide use of high-risk derivatives, and growth of non-regulated shadow banking.
Spread of COVID-19 in 2020 and quarantine restrictions are yet another example of an economic shock that can provoke recession. It might be just speeding up the process that could be inevitable due to other factors.
How US recession 2008 influenced global capital markets
The economic recession and crisis in 2008 followed a lengthy time of growth of housing prices and a boom of mortgaging in the US. The overall economic peak happened in December 2007,and the NBER considers this month the beginning of the recession. At the start, the decline of the economic activity was modest but sped up abruptly in autumn 2008 when stress in financial markets reached the top. The US GDP dropped from +2% to -2.6%, and the unemployment rate grew from 5% to 10%.
January 2007 through September 2009 large US and European banks lost more than $1 trillion on toxic assets and unsecured loans. A lack of confidence of investors in the paying ability of banks alongside loans becoming less affordable led to an abrupt decline of prices for goods and services. The crisis quickly turned into a global economic shock, making several large banks go bankrupt. Economy worldwide slowed down because crediting became tough and global trade went feeble.
This recession in the US became the longest one since World War 2 and lasted 18 months. The S&P 500 index started falling at the end of 2007 and, having lost more than 50%, began recovery only in the middle of 2009.
Global economic recession 2022
These days, the global economy is slowing down abruptly. War in Ukraine, growth of prices for energy carriers and foods alongside imbalance between the demand for them and supply provoke growth of global inflation. According to forecasts of analysts, a decline of the buying ability of households and toughening of the credit and monetary policy will bring down the growth of the US economy up to 2.3% this year and up to 1% in the next year.
In China, the slow-down of economic development turned out stronger than expected due to COVID-19 breakouts and imposed quarantine measures. In the Euro zone, growth dropped to 2.6% this year and will reach 1.2% next year. According to the forecasts of the IMF, inflation and the geopolitical crisis have already put the global economy on the verge of recession.
Read more at R Blog - RoboForex
Sincerely,
RoboForex team
Author: Victor Gryazin
Dear Clients and Partners,
This overview describes what economic recession is and why it happens. We will analyse a case of global economic recession and see some advice concerning how to behave during a crisis.
What is economic recession
Recession is a serious and lengthy decline of economic activity, characterised by a decrease in production and employment that results in falling of income and spending of households. This phenomenon may last over several months and is usually followed by a decline of the GDP.
Experts from the US National Bureau of Economic Research (NBER) have given their own definition. They state that recession is a significant economic decline that starts at the high of preceding growth and ends at the low of subsequent falling.
The decline of economic activity must be quite deep and lengthy to have the right to be called recession. It may last just several months but it will take the economy years to get back to the previous peak.
Reasons for and signs of economic recession
Multiple economic theories struggle to explain why and how economy escapes a lengthy uptrend and starts falling. For example, abrupt and stable growth of oil prices due to a geopolitical crisis may lead to growth of spending at the global market and provoke a global economic recession.
According to the conclusion made by the US Congress Special Commission, the economic recession 2008-2009 was provoked by such factors as mistakes in financial regulations and in corporate management, excessively high debts of households, wide use of high-risk derivatives, and growth of non-regulated shadow banking.
Spread of COVID-19 in 2020 and quarantine restrictions are yet another example of an economic shock that can provoke recession. It might be just speeding up the process that could be inevitable due to other factors.
How US recession 2008 influenced global capital markets
The economic recession and crisis in 2008 followed a lengthy time of growth of housing prices and a boom of mortgaging in the US. The overall economic peak happened in December 2007,and the NBER considers this month the beginning of the recession. At the start, the decline of the economic activity was modest but sped up abruptly in autumn 2008 when stress in financial markets reached the top. The US GDP dropped from +2% to -2.6%, and the unemployment rate grew from 5% to 10%.
January 2007 through September 2009 large US and European banks lost more than $1 trillion on toxic assets and unsecured loans. A lack of confidence of investors in the paying ability of banks alongside loans becoming less affordable led to an abrupt decline of prices for goods and services. The crisis quickly turned into a global economic shock, making several large banks go bankrupt. Economy worldwide slowed down because crediting became tough and global trade went feeble.
This recession in the US became the longest one since World War 2 and lasted 18 months. The S&P 500 index started falling at the end of 2007 and, having lost more than 50%, began recovery only in the middle of 2009.
Global economic recession 2022
These days, the global economy is slowing down abruptly. War in Ukraine, growth of prices for energy carriers and foods alongside imbalance between the demand for them and supply provoke growth of global inflation. According to forecasts of analysts, a decline of the buying ability of households and toughening of the credit and monetary policy will bring down the growth of the US economy up to 2.3% this year and up to 1% in the next year.
In China, the slow-down of economic development turned out stronger than expected due to COVID-19 breakouts and imposed quarantine measures. In the Euro zone, growth dropped to 2.6% this year and will reach 1.2% next year. According to the forecasts of the IMF, inflation and the geopolitical crisis have already put the global economy on the verge of recession.
Read more at R Blog - RoboForex
Sincerely,
RoboForex team
