Economic Recession Essay

 

MAFMG (2011-13)

EFFECT OF RECESSION ON CONSUMER’S AND APPARELINDUSTRY 

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INTRODUCTIONThe topic of my review essay is ‘Effect of Recession on Consumer Buying Behaviour andApparel Industry’.

Over the years a lot of discussion and research had been done on recessionand the impact of recession, how and why recession arises and how it effects the entire world.This paper is an attempt to review various reports and researches done in the area of theimpact of recession on the apparel industry and on the consumers behaviour and to have a better understanding of recession.In my review essay I would be reviewing:

What is recession- understanding what recession is and its definitions.

Effect of Recession on other Industries- the various effects that recession has onindustries worldwide.

Effect of Recession on Consumer’s- how does recession affect the consumers andwhat all problems they face.

Success tactics during Economic Decline- what tactics are implied by business manthat improved strategic viability during recession.

Effect of recession on Apparel Industry- understanding how recession affected theapparel market globally, what were the strategies applied during recession, effect onsupply and demand side.

The Effect of A Recession

There is a lot of talk about recession at the moment. There is a general understanding recessions are bad, but what does it actually mean to be in a recession and how does this affect the average consumer?

The definition of a recession is negative economic growth for two consecutive quarters. This means a fall in Real GDP, - lower National income and lower National Output. However, it is worth noting some people talk of a recession, even when growth is very low.

A recession is characterised by:
  • Rising unemployment (often unemployment is a delayed factor) i.e. it takes time for unemployment to rise, but, even when the economy is recovering, it takes time for unemployment to fall.
  • Rising Government Borrowing. A recession is bad news for the government budget. A recession leads to lower tax revenues (lower income tax and corporation tax revenues) and higher government spending on unemployment benefits. The UK is forecast to borrow £60 billion, a recession could make this borrowing even worse in 2009. This borrowing means higher taxes and higher interest payments in the future.
  • Falling Share Prices. Generally a recession leads to lower profitability and lower dividends. Therefore, shares are less attractive. Note share prices often fall in anticipation of a recession. e.g. the recent falls in share prices are largely because the market expects a recession soon. During the actual recession, share prices often increase in anticipation of the economy recovering. Note also, falling share prices don't always mean a recession, falling share prices can occur for many other reasons.
  • Lower Inflation. Typically a recession reduces demand and wage inflation. This should result in a lower inflation rate. However, this recession is complicated because of rising oil prices. Therefore, the forthcoming recession may actually occur simultaneously with higher inflation - a term known as stagflation. But, a recession will definitely reduce demand pull inflation pressures and encourages price wars on the high street as firms seek to retain consumers.
  • Falling investment. Investment is much more volatile than economic growth. Even a slowdown in the growth rate (economy expanding at a slower rate) can lead to a significant fall in investment.
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