Recession and its reasons

The global stock markets have slumped and have witnessed severe recession for the past few weeks. Shares at the biggest markets of the world including Wall Street, Germany’ DES, Tokyo also took a hammering.

Wall Street has also suffered its biggest drop since 1987. While Pakistan Stock Exchange have also witnessed severe recession.

World’s economists have suggested that the rising fears of coronavirus are the main reason behind the recession of international stock markets. Of course this could be a major cause of the recession, but we also have to look at other reasons.

In view of the entire current situation, first of all, we need to know what recession is and how is it born?

What is Recession?

Recession is known as a period of significant decline in economic activity during which trade and industrial activity are reduced. Recession generally occurs when there is a widespread drop in financial markets.

In terms of stock markets, recession is a negative trend in the stock market under which prices of shares start to fall down. The investment made by the public sink in this situation.

Recession in PSX today (13^th March)

The latest recession is that the Pakistan stock market today fell more than 1600 points, leaving investors with billions of rupees loss.

Trading was halted for 45 minutes for the third in this week after KSE-30 index fell 5.96 percent to 15,039.17 points.

When trading stops, the benchmark KSE-100 index was down 1682.96 to 34,273.73 points.

Reasons behind Recessions

1- Coronavirus and other epidemics

The apparent cause of the current recession in international markets is a coronavirus that has been declared as a pandemic by the World Health Organization (WHO).

The deadly virus has claimed the lives of more than 4,500 people and has spread in almost 110 countries.

Extreme measures are being taken around the world against the virus, which is essential for the national security of the affected countries.

The novel coronavirus causes recession in this manner that the industries, tourism, airlines, hotels, major sports event, and educational institutions have been shut down in many countries through which the economy suffered.

Other epidemics that have spread before this new virus have also caused recession in international financial markets. If we talk about the outbreak of the previous virus namely Ebola, it has infected 28,616 people and almost 11,310 people died.

In the past, the outbreak of swine flu in the United States affected 610 million people and killing 755,000 people worldwide.

These epidemics are the biggest cause of recession in the global markets.

2- Oil Price War

Saudi Arabia recently declared oil price war against Russia which also caused recession in markets globally.

The Kingdom slashed the price by 30 percent and set plans for a dramatic increase in crude production in April.

This caused the international market a recession and shares once again took hammering all over the world.

3- Fake News

In the past, there have been predictions regarding war between Pakistan and India which caused a huge recession in market. In the country where you are investing, if the war breaks out, then the destruction of the business appears.

4- Artificial Recession

It is not only the case of Pakistan but the role of negative elements in the markets of other countries cannot be ignored. These elements exploit the law of supply and demand.         

The law of supply and demand states that if you make a shortage of something, the demand will increase, which will make the item expensive.

In Pakistan, the profiteers increased the value of sugar and flour by storing, which made those items expensive. This is also called artificial inflation.

The negative elements in the stock market worked with strategic planning and a large amount of capital is invested first and the market goes up. People think that if we invest in this situation, we will gain benefits.

The capital invested by the negative element, they suddenly pull back from which the market and then the recession occurs. It’s called Artificial Recession.

In this current situation, one should participate in stock market that has some knowledge about risk management otherwise the person will become the part of the recession.