Nepal will have insignificant impact of the global crisis because its domestic economic activities are sluggish which implies that it is already in the nearest point of recession. But there will be greater impact from the present global economic crisis. Millions of youths will lose their job in the foreign countries that reduces the remittance.
Recession is an economic term that refers to the phase of business cycle in which the existing policies and activities fail and the economy heads towards crisis. Business cycle is the process in which the economic activities vary around its long term growth trends. The cycle in values shifts over time between periods of relatively rapid growth of output which is termed as the recovery and prosperity. The same cycle later turns into the period of relative stagnation and or decline in economic activities namely the phase of contraction or recession. The occurrence of these phases one after another and their repetition in the short as well as long run is the natural process of business cycle. There are a number of indicators that exhibit particular phase in business cycle but are conventionally measured using the real gross domestic product (GDP).
While dealing with recession it will be relevant to cite here an old proverb - ‘a recession is when your neighbor loses his job and depression is when you lose your own job’. As descried above, recession is the phase of contraction in the business cycle when the economic activities are dawdling. Accordingly, the period of general economic decline specifically the decline in real GDP for two or more consecutive quarters indicates recession. United States of America, Britain, European Nations and even Asian countries including Japan are almost in recession according to the popular rule of thumb of two consecutive quarters of falling GDP.
International Monetary Fund (IMF) also has set a benchmark for recession with real GDP growth rate less than 3 percent implying a world recession. Its world economic outlook published on November 6, 2008 predicts that the world GDP growth would fall 2.2 percent in 2009, based on purchasing power parity (PPP) weights from 5 percent in 2007 and 3.7 percent in 2008. The situation would be more vulnerable in the coming days as some forecasts by private firms are even gloomier, with several now predicting global GDP growth to be no more than 1.5 percent in 2009. Provided the predictions are true, the world is heading into serious trouble.
At this rate, middle income counties are likely to suffer from recession from early 2009. The fast growing economies of East Asia including China and countries of South Asia including India will be affected by the recession sooner or later. Countries of the Middle East and ASEAN will also be affected by the global economic crisis. In return, Nepal’s economy will jeopardise as a result of the dripping in the economic activities of these countries.
Advanced and middle income countries are the main source of livelihood for lower income countries like Nepal. Nepal’s economy in particular depends on agriculture and foreign employment that are significantly providing employment to the growing population. Middle East, East and South Asia, Britain, Euro-zone, Australia, USA, and Canada are the destination countries where millions of youths of Nepal are employed. In recent years, remittance alone from these countries covers over 20 percent of the GDP.
Real estate is the fast growing business sector in domestic economic front of Nepal. A huge chunk of money has been invested in this sector from the private investors by taking loan from banks. The probability of this sector of being paralysed from the present crisis is high because there is a high correlation between the real estate business and remittance. Past experiences have proved that almost all the remittances have been invested in this sector in the urban areas of the country. If our youths lose foreign employment, their income will diminish as a result of which they will lose their capacity to buy real estate in a greater scale. Consequently, this sector will be affected faster than the others.
Reduction of poverty depends on the remittance as Nepal Living Standard Survey of 2003/04 revealed that the poverty reduced from 42 percent at the beginning of Ninth Plan period (1997) to 31 percent in 2003/04. Amidst the intensive conflict persisting during the period that slowed domestic economic activities, country achieved remarkable progress in reducing poverty. This achievement was not the gift of the domestic economic progress but a result of the remittance. In this juncture, the poverty reduction strategy of the nation will be affected by the global economic crisis.
Nepal will have insignificant impact of the global crisis because its domestic economic activities are sluggish which implies that it is already in the nearest point of recession. But there will be greater impact from the present global economic crisis. Millions of youths will lose their job in the foreign countries that reduces the remittance. Youths will return home because destination countries might probably ban foreign employees to secure their own jobless people. In essence, foreign employment sector will get more vulnerable which will have huge impact on the Nepalese economy.
Recession is an economic term that refers to the phase of business cycle in which the existing policies and activities fail and the economy heads towards crisis. Business cycle is the process in which the economic activities vary around its long term growth trends. The cycle in values shifts over time between periods of relatively rapid growth of output which is termed as the recovery and prosperity. The same cycle later turns into the period of relative stagnation and or decline in economic activities namely the phase of contraction or recession. The occurrence of these phases one after another and their repetition in the short as well as long run is the natural process of business cycle. There are a number of indicators that exhibit particular phase in business cycle but are conventionally measured using the real gross domestic product (GDP).
While dealing with recession it will be relevant to cite here an old proverb - ‘a recession is when your neighbor loses his job and depression is when you lose your own job’. As descried above, recession is the phase of contraction in the business cycle when the economic activities are dawdling. Accordingly, the period of general economic decline specifically the decline in real GDP for two or more consecutive quarters indicates recession. United States of America, Britain, European Nations and even Asian countries including Japan are almost in recession according to the popular rule of thumb of two consecutive quarters of falling GDP.
International Monetary Fund (IMF) also has set a benchmark for recession with real GDP growth rate less than 3 percent implying a world recession. Its world economic outlook published on November 6, 2008 predicts that the world GDP growth would fall 2.2 percent in 2009, based on purchasing power parity (PPP) weights from 5 percent in 2007 and 3.7 percent in 2008. The situation would be more vulnerable in the coming days as some forecasts by private firms are even gloomier, with several now predicting global GDP growth to be no more than 1.5 percent in 2009. Provided the predictions are true, the world is heading into serious trouble.
At this rate, middle income counties are likely to suffer from recession from early 2009. The fast growing economies of East Asia including China and countries of South Asia including India will be affected by the recession sooner or later. Countries of the Middle East and ASEAN will also be affected by the global economic crisis. In return, Nepal’s economy will jeopardise as a result of the dripping in the economic activities of these countries.
Advanced and middle income countries are the main source of livelihood for lower income countries like Nepal. Nepal’s economy in particular depends on agriculture and foreign employment that are significantly providing employment to the growing population. Middle East, East and South Asia, Britain, Euro-zone, Australia, USA, and Canada are the destination countries where millions of youths of Nepal are employed. In recent years, remittance alone from these countries covers over 20 percent of the GDP.
Real estate is the fast growing business sector in domestic economic front of Nepal. A huge chunk of money has been invested in this sector from the private investors by taking loan from banks. The probability of this sector of being paralysed from the present crisis is high because there is a high correlation between the real estate business and remittance. Past experiences have proved that almost all the remittances have been invested in this sector in the urban areas of the country. If our youths lose foreign employment, their income will diminish as a result of which they will lose their capacity to buy real estate in a greater scale. Consequently, this sector will be affected faster than the others.
Reduction of poverty depends on the remittance as Nepal Living Standard Survey of 2003/04 revealed that the poverty reduced from 42 percent at the beginning of Ninth Plan period (1997) to 31 percent in 2003/04. Amidst the intensive conflict persisting during the period that slowed domestic economic activities, country achieved remarkable progress in reducing poverty. This achievement was not the gift of the domestic economic progress but a result of the remittance. In this juncture, the poverty reduction strategy of the nation will be affected by the global economic crisis.
Nepal will have insignificant impact of the global crisis because its domestic economic activities are sluggish which implies that it is already in the nearest point of recession. But there will be greater impact from the present global economic crisis. Millions of youths will lose their job in the foreign countries that reduces the remittance. Youths will return home because destination countries might probably ban foreign employees to secure their own jobless people. In essence, foreign employment sector will get more vulnerable which will have huge impact on the Nepalese economy.
By Dr. Kamal Raj Dhungel
(Dhungel is Associate Professor, Central Department of Economics, Tribhuvan University.
(Dhungel is Associate Professor, Central Department of Economics, Tribhuvan University.
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