Question

What impact has the recent economic and financial crisis had on business?

Answer 1

The world is currently is a turmoil and its impact is witnessed by all countries at various levels. There is a heavy storm of bailouts, bankruptcies, jobcuts, cash flow pressures in recent times due to the pandemic which has now caused a recession.

Economic recession means decline in country's gross domestic product(GDP) and GDP is the total value of goods and services produced in the country in the given year. Here are few characteristics of recession, through which we can understand how the current situation is similar,

• Increasing Unemployment
• Decrease in demand for goods which leads to decrease in production.
• Decreasing demand for imports.
• Increasing government borrowings.

Now in the businesses, when the sales revenue and profits declines, the business cut back on hiring new employees. If the sales declines further more, then the business have no option but to remove their current employees to prevent the business from bankruptcy.

First impression of recession can be seen in the tightening of credit system and credit conditions. Because the lenders are more selective of risks. With reduced revenue, the affected company will be forced to make lower and slower increments to their credits or loans taken. If the company cannot repay as agreed upon the lending agreement, then the business turns towards bankruptcy. This is what happens when recession stays for too long.

The current global financial crisis hasn't reached that far. The present crisis has impact on potential output levels. The businesses here have to keep more liquidity during such a situation. But now, as the previous lockdown restrictions are being lifted in countries, there are chances that the situation will improve soon. It will be a slow process to bring down the financial crisis all over the world, but by people finally coming out, the demand will slowly start to increase.