Recent Recession in the UK - Coursework Example

Recent Recession in UK and Section # of Recent Recession in UK The current recession has wreaked havoc on the global economy and businesses have been deeply hurt due to falling demand for goods and services. Generally, we define recession as a decline in the productivity, output and per capita income due to lesser economic activity. A recession occurs when the economy has slowed down in terms of its growth and this fall in economic activity lasts for more than two consecutive quarters in a year (B. Abel & Bernanke, 2007). If not monitored properly and not acted upon proactively, a recession may continue beyond the normal business cycles and may become a depression as well (B. Abel & Bernanke, 2007). The fall in prices, economic activity, employment levels, consumption and GDP are some factors which when combined can be the major cause and main source of the recession. Despite the financial crunch that the world had recently faced, the reality is that the governments of the developed economies such as that of UK and USA have been unable to route the increased government expenditures into the right direction; otherwise, the recession would have been avoided at the first place or ended quickly but critical decisions and fault in their policies brought negative repercussions. The recent recession hit many industries and left them in bad shape in the UK. Among those seriously crippled by the recession include the Steel industry, automobile sector, retail industry. Steel Industry Steel which had been considered as a very precious metal in the early 1990s has been losing its shine now. Overcapacity and surplus supply in the industry, a falling demand and increasing fragmentation has been an obstacle to the growth of this core sector of the economy. The way that the technology today is attracting a huge number of entrepreneurs in the economy is an incontrovertible proof that steel had always been a profitable sector. Large numbers of corporates were actually inspired and promoted but the main problem was that most of them had lacked financial backing (Lingwood, 2010). Steel being a capital-intensive industry requires huge capital and financial investments. Most companies thus ran a high debt exposure, borrowing form a portfolio of financial intermediaries and institutions. The steel market was booming and as a result a lot of new projects were flourishing at a high pace. Consequently, capacity had been augmenting quicker than the demand. This complimented with the recent industrial slowdown and slump in economic growth worldwide has widened the demand supply mismatch much further. The major loss incurred by the financial institutions that had advanced loans to these Steel Giants. In addition to a vanishing domestic demand, steel exports have been largely hit by the global recession as well. The steel industry has been suffering from the reverberations of the recession and according to industry forecasts it will not only continue in the current year but will take a couple of years to fully recover from this serious recession. According to predictions for structural steel usage, the demand is reported to be not more than 50% in 2010 as compared to its usage in the year 2008. The worldwide downturn in the economic growth has seen one of the UK’s largest steel contractors Severfield Rowen to witness a downfall of 11% in its revenues in year ended 31st December 2009 i.e. from GBP 394.3 million to GBP 349.4 million. With many previously started commercial and industrial projects almost completed, the steel industry is severely feeling the impact of the recession. One of the major companies, Redcar, had to downsize its company; a job loss of more than 1200 people and temporary shutdown of the plant (Lingwood, 2010). Despite a predicted loss in 2010, companies are hopeful that business will actually pick up and things will start improving by early 2011. The industry experts, along with the entire steel industry executives, are hoping that the recent growth figures that are being projected by the Government suggest that the country is slowly and gradually coming out of recession and will soon regain its economic strength. Automobiles Industry Along with other industries, the automobile sector has also been affected negatively by the recession with several reports of widespread, increased levels of redundancies and business closures throughout the sub-sectors and intermediaries as well (IMI, 2009). An analysis of the official data sources has provided enough evidence to support these reports. Certain figures such as that of employment levels in the sector have shown a declining trend. Available job levels in the automobile sector have also steadily been going down over the period during this recession since July’08, making it more difficult, for those who are out of work, to find employment. However, used automobiles sales have remained almost on the same levels; new car sales are the ones badly hit by the recession falling dramatically. On the other hand, several garage owners and workshops are reportedly benefitting from the fall in demand for newer cars as the recession hit consumers also seek less costlier alternatives for maintaining and servicing their vehicles for extended usage on an average. Investment in training and development of skilled and technical employees by employers has declined severely as fewer employers are maximizing their marginal benefits by replacing the lower skilled staff and instead to invest in retaining their higher skilled staff and thus reducing the impact of productivity of their businesses. UK car production has thus continued to be badly hurt by the global recession. Figures for April from the SMMT (Society of Motor Manufacturers & Traders) have shown a continuous decline in the total number of cars produced in the UK, a reduction by 55.3% in April’09 compared with the same period a year before (IMI, 2009). This is followed by a record decline of 59% in February’09 and a further drop of 51.3% in March’09 in the total output and sales of the vehicles manufactured in the UK. The SMMT however has mentioned about the UK’s government scheme for scarping the old cars to bring some positive changes and a slight support to the declining automobile sector pushing the demand for new cars a little upwards to induce growth into this sector. However, this increase in the demand will take some time to urge producer to enhance their production and increase employment. The decline in the volumes of new car and trucks registrations has been noted by and large throughout all of the countries in the European Union. In April’09 the number of the new car registrations was below by 11.9% as compared with the same month only a year ago while registrations in the first quarter of the year were down by 15.7% against the same period a year ago. In Western Europe, Germany being the most significant producer in the automobile sector as a notable exception witnessed the new car sales rise by 19.4% in April’09 compared with April 2008 and up 18.4% in the year 2009 as a whole which had been a surprising fact and depicts the confidence in the German Auto-manufacturers’ quality and product that consumers put in. The registrations for new cars in France and Italy, which had previously witnessed some positive trends in their sales volumes, fell in April’09 by 7.1% and 7.5% respectively (B. Zimmerman, 2009). All three governments of France, Italy and Germany have thus followed the trail of UK in introducing ‘cash for scrap’ schemes; Germany, however, currently had been most effectively utilized this scheme and as shown in the above figures has had the greatest success. Thus the cars’ industry has been attempting to find and implement solutions such as that of the above, to induce demand for newer cars and keep the factories/plants running by somehow countering the heavy impact of this economic recession and its effects on them. Retail Industry The retail industry in the UK has also been hit hard by the economic recession and the fall in sales seems to still continue.  Retail executives of the major retail chains have stated their expectations of some very fundamental key changes in the industry dynamics and landscape as a result of this recession such as consolidation and structural changes in the long back-end supply chains.  A summary of the impact of the recession on the retail industry and its expected outcomes is as follows: 60% of the managers and executives believe that the recession will ultimately lead to consolidations to save the sinking ships from drowning/bankrupting and survive the recession. Likewise the supplier base is also expected to become more concentrated with only the efficient one’s surviving into the market.  57% experts agree that the need to optimize the supply chain structures and aligning sourcing more closely with end markets will take place.  64% agree that large discount retail stores will be able to counter the impact of the recession more effectively than any other competitors/retailers in the market.   Thus the shift in demand for the low cost alternatives in many product categories will affect the profit margins for many retailers in the industry.    Conclusion The main problem with an economic recession is that many people start feeling highly insecure about their real incomes and have a risk of losing their jobs in the face of recession during any downsizing drives (Klaus, 2009). A few alternatives that can be taken to counter the negative impacts of economic recession include: Identifying and polishing individual talent and finding opportunities where this can be utilized. Thus leveraging the personal skills to utilize them in free lancing and/or any other entrepreneurial venture makes people independent and they have a chance of finding something to do to keep their income levels positive to some extent rather than losing it all. The government on the other hand should increase its spending via different means such as economic activity, infrastructure and other means of creating employment and inducing demand to counter the effects of recession and overcome the downturn in the economic activity. Devaluing the currency and reducing the interest rates can also help in inducing demand for consumption and investments by the private sector thus curbing the problems of the recession. References B. Abel Andrew and Bernanke S. Ben (2007) Macroeconomics, 7th ed: Prentice Hall. B. Zimmerman Martin (2009) A View of Recessions, From the Automotive Industry. Retrieved May 6, 2010: http://www.bos.frb.org. IMI Research Department (2009) The Automotive Retail Sector-Impact of the Recession. Retrieved May 6, 2010, from IMI: http://www.motor.org.uk/research Klaus E. Meyer (2009) Thinking Strategically during the Global Downturn. Retrieved May 6, 2010: http://www.klausmeyer.co.uk Lingwood Catriona (2010) Struggling steel industry feels the pain. Retrieved May 6, 2010: http://www.journallive.co.uk Michael Burda and Charles Wyplosz (1995), European Macroeconomics, 2nd ed: Oxford University Press Read More