Looming Global Economic Slowdown leads to a recession

As per a report put out by Morgan Stanley, which is one of the world’s leading global financial firms, the world economy appears to be heading towards a recession. However, fortunately for India, as per the initial projections of the Morgan Stanley group, the economic downturn is not going to affect India.

What has happened?

• The bond yield curve, which is the measure of the total yield of the returns on the bond in the short term and in the long term has inverted.
• This is one of the clearest signs of a looming recession and the shape of the curve is similar to what was observed before the 2008 Great Financial Crisis.
• The issue has been compounded by the looming trade dispute between the US and China.
• Policy uncertainty in the US and the looming Brexit have also contributed to the volatility in the economy.
• Morgan Stanley estimates that the global economy will enter into a recession with the 3 quarters and it would be a first recession to hit the global economy since 2008.
• However, India, despite its grim performance in key economic areas like automobiles, is not going into a recession.
• Analyzing global trends, global banks have cut lending rates to ease the credit flow and stimulate their economies.?
• The Central Banks of India, New Zealand, and Thailand have all cut lending points by over 35, 50 and 25 basis points respectively.

What is a recession?

In economic terms, a recession is referred to as a business cycle in which a widespread contraction takes place in the economy due to a general decline in economic activity.

A Recession mainly occurs when a widespread drop in spending (an adverse demand shock) occurs. Hence, the Central Banks are making the supply of credit cheaper.