Recent Recession

Recession refers to the significant drop in economic activity of the country. The dragon of recession has just enveloped the whole world into its clutch and many monetarily sound countries are now observing the state of recession and Canada is just one of them. The effects of current recession are very severe and even developed and prosperous countries are not spared from its worst clutches. The most affected sectors of the recession are employment and Gross Domestic Products. They are undesirable but in a market economy like Canada’s cycle of recession and prosperity are regular features of long term economic growth and development. There are many reasons for the recessions. Most often, business build up inventories and as a result cut back their production and lay off staff. The demand for the products diminishes in the market and manufacturers have to postpone further production due to lack of demand. This largely affects on the sources of income, when there is no sale, income eliminates accordingly. The increasing effect of lower income and low spending also shakes confidence in the economy. During the earlier Canada recessions, the Canadian economy shrank substantially. The GDP decreased from 1990 to 1991 by 1% and the rate of unemployment rose above 10%. Both, federal and provincial governments have posted their higher deficits as they collected less income tax and there was a remarkable spending at corporate sector on employment insurance benefits etc. The Canadian government is trying to avoid or overcome recession by adjusting monetary and fiscal policies – increasing spending, cutting taxes and lowering rates of interest on the loans of all types – in order to create demand for the goods and services. The bank of Canada had reduced the rate of interest many times to co-op with the spreading recession. Canada may eventually experience a technical recession, but nothing like the painful downturn it suffered during 1990.