In late 2008, a number of universal indicators suggested that the world was in a global downturn. These factors, when combined with the current financial crisis (see Start of the Financial Crisis (2008)), have created devestating recessions in a number of world powers. As of December 2008, the National Bureau of Economic Research (NBER), reported that the United States had been in an economic recession since the previous December.
What is a Recession?
In economics, recession refers to the reduction in a country’s Gross Domestic Product (GDP) for at least two business quarters. There are a number of signs that a recession might be happening, or about to happen. This includes a significant drop in prices on the stock markets, such as the price drops caused by the 2008 Global Financial Crisis which the world is still reeling from.
There are a number of ways to respond to a recession. These are at both government and business levels and can involve tax cuts, or in some cases not doing anything at all. This is known as ‘Laissez-Faire’ and is done under the idea that at some point, the problem will sort itself out.
Factors that Caused the Global Recession in 2008
Since 2000, the world has seen the prices of primary consumer products rise, but in 2008 they reached such high prices that they were causing actual damage to the world economy and even threatening to reverse globalization. In early 2008, oil prices reached and passed the major milestone of $100 per barrel and peaked in July at $147.30. Such high prices caused a severe drop in demand and by the end of 2008, it cost just $35 per barrel of oil.
Trade also suffered considerably in 2008, with the Baltic Dry Index (a measure of world shipping volume) dropping by 50% in just one week in mid-October. This has been blamed on the credit crunch, which made it hard for shipping merchants to obtain Letters of Credit.
In February 2008, Reuters.com announced that global inflation was at an all-time high, blaming the excess of money, the financial crisis and growing demand for commodities as probable causes for such high inflation.
The International Labour Organisation reported that by the end of 2009, 20 million jobs had been lost because of the global financial crisis, bringing the world’s unemployment figure above 200 million for the first time ever.
There is no way to predict when the current global recession will end, but world governments acted immeditately when the recession hit-new policies were made and bail out plans were put into action.