Macroeconomics - Essay Example

Reasons for the Increasing Recession across the Globe Reasons for the Increasing Recession across the Globe One of the worst global economic recessions happened in mid-2007 and persisted for several years (Nabli, 2011). The financial crisis ensued in large and small economies and translated into the hardest time of the current decade. The bursting of the housing bubble in United States and the unstable global economy led to the unanticipated recession. Lessons were learnt, but recession seems to be a recurring problem across the globe.

The globe has registered low economic growth overall. Recession results in decline economic activity in any economy (Beckworth, 2012). Markets experience a slowdown that upsets the production of goods and provision of services. The market registers low employment level because the economy does not have the requisite power to absorb unemployed and qualified fellows. The reasons for increasing recession that will be addressed in this paper include inefficient global trade, the influence of China, banking system failure, the performance of the dollar, and weak economic policies. i. Inefficient Global Trade International trade has registered low traction in the recent past.

The success of global economies is anchored on the capacity of international trade to remain strong before and after recession crisis. Global trade saw a sluggish growth of 4percent per year starting in 2010. The International Monetary Fund projected the slump in global trade performance after 2007 (Beckworth, 2012). The world is depending on global trade to confront the problem of low economic activity. The greatest impact has been felt in the advanced economies, but the unaffected emerging markets have done little to salvage the trade.

Additionally, the emerging markets have registered a 4.3 percent growth that cannot remedy the imbalance in the international trade. According to Parkinson, Blackwell & Marlow (2015) many emerging markets exist in follower economies though they have registered significant economic growth. Brazil, India, and Russia were projected to be the worldwide saviors for the global trade, but they have faced internal crises that have compelled them to continue depending on advanced economies such as United States.

For example, Russia is struggling with geopolitics and low oil volumes. The existing interconnectedness of international trade will continue ailing global trade and result into further recession in future. ii. Weak Economic Policies Countries with falling margins have failed to institute policies that can lead to a reduction of costs. Companies lack the power to compete in the market resulting in low production levels. Firms have been utilized the method of splitting production of goods by improving command wage rates and reducing transportation costs.

United States and European countries have been the leading economies in shifting their manufacturing base to Asia. The move has seen a profound increase in profits and cutting costs by almost 50percent (Nabli, 2011). However, outsourcing has become the source of temporary and permanent layoffs in mother countries. The overall effect has been breakup in global production processes and increased level of unemployment. Unemployment was the leading cause of Great Recession of 2007-2009, and the mistake has recurred in states that are known set the pace of the global economy.

While the leading economies across the globe cannot be blamed wholly on the increasing recession level, the channels charged with mitigation procedures have relaxed on the critical duty. The result has been increased the susceptibility of economies to series of recessions. There has also been a slowdown in advanced countries that sustain the global economy. The bodies charged with mitigating the problem of recession have unveiled short-term policies that have seen the crises recur. America, Ireland, and Hungary are accustomed to harsh measures that have affected the developing or poor countries (Parkinson, Blackwell & Marlow, 2015).

Private pension cuts and increased taxes have favor increase in recession rather offering long-term solutions. Economies are likely to face harsh days in future beyond the damage that 2007-2010 crises brought. iii. The Profound Influence Of China China has taken over the world as an economic giant, but its success has resulted in a global disappointment (Parkinson, Blackwell & Marlow, 2015). The emerging market for Western economies has contributed to more recession than expected. The rapid growth in China has affected the economies that use it for marketing and outsourcing.

Canada uses China to sell raw materials but has not benefitted in return. The largest Asian economy has not implemented policies that can enable it accommodate market for raw materials and create exports ready for the Western nations. The process has resulted in an economic pause that has been the cause of recurring recession. China has been busy with transforming its economy to accommodate domestic demand rather than the international sources. Struggling export markets have continued to experience reduced growth.

China created demand for virtually all raw materials, but the demand went down in 2010 (Nabli, 2011). For example, Canada reduced its exports to China by 5.5 percent when the demand for iron and coal declined in 2014. The weaker commodity prices have increased the concerns of recession in Western economies that were performing well during pre-recession years. The effect has extended to the labor markets that cannot sustain workers due to increased wage costs. The global economy will continue to experience large employment gaps and low output and fail to confront the level of slacked economic growth.

The recession levels will become inevitable in the end. iv. The Failure Of Banking Systems Banking systems are blamed for the 2007-10 recession that affected large economies such as United States (Beckworth, 2012). Banks and telecommunication sectors have not been spared from the huge cuts and tax impositions. Banks are compelled to retaliate in order to stay afloat, compete and retain market share. The process has resulted into down turn in the price of stocks that shape trade in global economies.

American economies faced foreclosures after 2007-10 recessions after the governments imposed the tax policies. Advanced countries do not take the time to assess the future impact of the tax and financial policies. United States assumed the role of the last resort in order to bailout banks from the crisis. Additionally banks have not investigated the problem enough in order to prevent the same problem. According to Beckworth (2012) the failure has resulted in banks without requisite credit backing to qualify for borrowing and lending to citizens.

On the other hand, citizen’s low standards of living and lack of disposed income have applied for loans that they cannot repay within the scheduled time. The cyclical activities in the banks and the behaviors of the larger economy have resulted in unpredictable labor markets. Such economies cannot help the threat of recession. v. Effect of The American Dollar The performance of the U.S dollar in the international market has been the source of threat to the economic growth of United States.

The dollar has been regaining its strength against the Chinese Yen. China is struggling with a debt problem but has seen a considerable growth in the recent past. The attempt by China to anchor its economic success in the manufacturing and infrastructure has been the leading cause of derailed global economy (Iossifov, Iossifov, Portillo, Wakeman-Linn & Milkov, 2009). No sooner have the economies and world currencies such as Dollar recovered from recession, than China unveiling its plan to take a share of consumption growth at the expense of leading economies such as United States.

Rines (2015) argues that the central bank has done little to prevent the influence of politics to the monetary policy. The financial systems of the globe such as Australia and Canada have been affected. The monetary system that use dollar has failed in providing stability during economic strife leading to incidences of recession. The dollar is likely to increase the level of recession or derail the recovery process if China takes over. The demand for products from United States and international trade will be some of the platforms that will be affected.

Summary World economies will continue dealing with the vicious circle of recession. Breaking from the reduced economic activity and low financial performance is not straightforward. The massive fiscal response might halt the increasing recession, but the question remains if economies are ready to for the extremes. Countries can work together to raise the overall level of output in globe before it is too late. The combined effort will grant the global economy the renewed power to bounce back from the financial crisis.

Coordinated government policies will come in to control the supply and demand levels and instill confidence to consumers and businesses. References Beckworth, D. (2012). Boom and bust banking. Oakland, Calif.: Independent Institute. Iossifov, P., Iossifov, P., Portillo, R., Wakeman-Linn, J., & Milkov, D. (2009). The International Financial Crisis and Global Recession. Washington, D.C.: International Monetary Fund. Nabli, M. (2011). The Great Recession and developing countries. Washington DC: World Bank.

Parkinson, D., Blackwell, R., & Marlow, I. (2015). The 7-year slump: Why the global economy can’t seem to get started. The Globe and Mail. Retrieved from http://www.theglobeandmail.com/report-on-business/the-7-year-slump-why-the-global-economy-cant-seem-to-get-started/article22611665/ Rines, S. (2015). Beware, America: A Strong Dollar Could Cause Another Great Recession. The National Interest. Retrieved from http://nationalinterest.org/feature/beware-america-strong-dollar-could-cause-another-great-12262