The term Global Economic Crisis is an amalgamation of the words Global and Economic crisis. Therefore, to have a clearer understanding of what it actually means we break up the whole term into two i.e. Global + Economic Crisis.Add paragraph text here.
The term Global encompasses the whole world. It simply means across boundaries.
What is Economic crisis?
Economic crisis can be defined as a situation where the economy of a country undergoes a sudden decline or downturn due to financial crisis. A country facing economic crisis is most likely to experience a declining a) GDP, b) frequent rise and fall in prices as a result of inflation or deflation, c) inability to easily convert assets into cash i.e. drying liquidity.
Historical recap
It was in the summer of 2007, global economic crisis was observed. However, its full impact was sensed post the bankruptcy of the investment bank, Lehmann Brothers in September 2008. The Global Economic Crisis or the Great Recession was observed to originate from the West.
As a result, the successive couple of years observed heavy job losses and decrease in the GDP (Gross Domestic Product) of many countries in the West along with many economies of the developing world. Furthermore, what initiated with the subprime mortgage* crisis quickly was converted into a full-fledged crisis of historic proportions. This in turn led to draw correspondence with the Great Depression of the 1930’s.
Global Economic Crisis – Definition
A Global Economic Crisis is a situation that affects not one but many countries at the same time. It refers to a period of worldwide economic difficulty that affects both markets and consumers. It is a business environment which is comparatively difficult to cope with. The reason being, reluctance of consumers in purchasing the goods and services until there is an improvement of overall economic conditions.
Cause of Global Economic Crisis
- A collapse/decline in the real estate / housing market in the United States;
- Imbalances were observed between the West and the East with respect to trade deficit;
- Coming together of several structural and business cycle factors;
Role of Globalisation
Globalisation did play a major role in spreading the effects of global economic crisis, however it was not solely responsible for it. The global economic crisis that began in the year 2008, encompassed the entire world. Once the Lehman brothers collapsed in 2008, there was a fear of decline for the entire global financial system as there exists integration of the global economies.
The recession was not observed equally around the entire world; however most of the developed economies of the world mainly in North America and Europe experienced it. Countries like China and India witnessed comparatively substantial economic growth during this period.
The crux of the entire process is that we should open our doors to the winds from all countries but we should refuse to be swept away by them. This implies we should not have any barriers while dealing with the different economies of the world but understand the importance of setting up a limit.
Paradigm Shift in Global Economy
It was observed that the ongoing crisis impacted the West more than it affected Asia. This implies that there was a true Powershift that took place from the West to East. In addition, this does not imply that China along with the other Asian countries could take a backseat.
It was seen that China seemed to follow a comparatively better path of development. On the other hand India was lagging behind because of lack of efficient policy and the mandates of democracy. Therefore, China’s rise is exemplary of paradigm shift where it was previously assumed that only democracies could sustain high levels of economic growth. The emergence of BRICS countries viz. Brazil, South Africa and a rejuvenated Russia along with China and India is expected to bring the necessary shift in balancing of power in the global economy
Conclusion
In purview of the aforementioned points stated, the global economic crisis had reversed the many gains that were a result globalization. Thus a need for renewal was felt in context to protectionism and for formulation of trade barriers in the West as well as in the East.
Simplifying further, the global economic crisis has resulted in a slowdown of the economies and it might take years to regain and recover its earlier prosperity.
