Why are the clouds of Recession looming in U.S.?

The U.S., often regarded as the world’s most powerful economy, is expected to enter a recession soon. This uncertainty has already had a noticeable impact at the global level, including on the U.S. stock market. Several factors contribute to this sudden decline, particularly amidst the current political turmoil in the U.S., which is leaving a lasting impression on the economy.

A recession in the U.S. means a bad disruption of the economic system at the global level. Many reasons are being assessed behind this recession in the U.S. and many factors have been analyzed so far. Looking at the current situation, if we even guess once that if there is a recession in the U.S. then what will be its effect on the markets of the whole world we will also try to know the reasons behind this recession.

American Recession

When we hear the word “recession,” one of the first thoughts that come to mind is “inflation.” It’s important to note that there is indeed a connection between recession and inflation. Often, when a country enters a recession, the entire economy suffers. Economic activity slows down, leading to a decrease in production (GDP), employment, and consumer spending. Consequently, the entire nation bears the impact.

These days there is an atmosphere of tension in America regarding many issues, the effect of which was recently seen on the country’s largest stock exchange NASDAQ and the results were shocking. Even before this, the U.S. economy has faced recession many times, which has affected the domestic and global markets. Talking about the main reasons behind the recession include many factors like unemployment, inflation, the global pandemic, and poor management. The reasons for the signs of recession in America include unemployment, Iran Israel war, and sudden increase in interest rates by Japan.

If we look at the history of epidemics in most countries of the world, then epidemics have been more responsible for recession. Due to the COVID-19 epidemic, many countries of the world have struggled badly during this period, although many developed countries of the world like America had prepared in advance to deal with it. Recession has a long-term effect on people and industries, from which a long journey has to be taken to recover.

NASDAQ declines

What we understand by super powerful country is “being strong only by military power”, not at all. A superpower country is one whose one signal causes turmoil in countries around the world, whether it is political, market or any other. America comes first in all these categories because the effect of America’s market or political decisions is seen all over the world. The recent heavy fall in the stock market of America has had a deep impact on many major countries of the world.

Since America’s major index is NASDAQ, its effect has been seen more on Japan’s stock market. Tokyo Stock Exchange’s major index NIKKEI saw a decline of about 12.40%. This decline was not limited to Japan only. Many major indexes of the world registered a decline more than usual. Talking about these indexes, mainly include KOSPI, TAIWAN INDEX, STRAITS, CAC, DAX and FTSE. We have explained the fall in these indexes in the table below.

Reasons behind the U.S. recession

Many factors are being blamed for the U.S. recession, but the main factors among them are unemployment, global tensions, and an increase in interest rates. The tension between Iran and Israel has created uncertainty in the global markets, which has definitely affected the U.S. market and this has also been seen as the main factor for these market conditions of America, while the sudden increase in interest rates by Japan has also increased economic instability.

The market conditions were already disturbed due to the pandemic like COVID-19, so due to these conditions, it will take a lot of time for the markets to recover. In the following points, we have talked about the elements responsible for the U.S. recession.

Unemployment: According to media reports, the unemployment rate in America was expected to be 4.1% in July, but it rose to 4.3%, reaching its highest level since October 2021. Additionally, the estimated number of new jobs for July was 1.79 lakh, but only 1.14 lakh jobs were created.

Similarly, non-farm payrolls in July fell to their lowest level since January 2021, dropping from 1.79 lakh to 1.14 lakh. These ongoing negative figures have significantly impacted American stocks and are considered one of the primary reasons behind the recession, creating a negative effect on the overall market.

Warren Buffett: who is considered to be the most successful investor in the stock market, recently took out 50% of Apple Company’s stake, which was worth about $70 Billion. After Warren Buffett withdrew his stake from the company, other investors followed him. As a result, a huge decline was seen in the market, which is also one of the main reasons for the fall of the American market.

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Discord between Iran-Israel: Ever since the news of the war between Iran and Israel became public, there has been an atmosphere of tension among the investors and they are worried about the economic risk due to the war after this news, investors started withdrawing their money and now they are The results are in front of all of us. The Israel-Gaza war had caused a 61% drop in employment in Gaza and a 24% drop in the West Bank in October and November 2023. Also, Palestinian GDP was expected to have fallen by about 4.2%

Japan raises interest rates: Japan’s economy is considered one of the strongest economies in the world and when a sudden decline is seen in the stock market of such a country, the reason behind it is also something special. Japan’s main index NIKKEI recorded a drop of 12.40% which stopped at 31458.40 points. The main reason for the fall in Japanese stocks is believed to be Japan’s interest rate increase.

Impact of U.S. recession on the Indian market

Like other countries of the world, the Indian market is also connected to the American market somewhere and if such a situation arises in America, then it will be obvious that its effects will be seen in the Indian market as well. If we look only at the mutual connection between the American stock market and the Indian stock market in connection with this recession, then this recession will not make much difference in the Indian stock market except the shares of tech companies. If we look at the import-export between America and India, then America is a big importer of Indian textiles, IT services, and pharmaceutical products.

India also imports a large part of petroleum, raw diamonds, liquid natural gas, gold, coal etc. from America. The total import-export of India to America in the year 2023 has been around 118.3 billion U.S. dollars. So we can guess how the relations between India and America are connected. Foreign investors play an important role in the stock market and in such a situation, if there is a recession in America, then it will be obvious that foreign investment will be less than before.

Due to this, there will be a fall in FDI and FPI which will have a direct impact on the Indian stock market. Due to the fall of the U.S. dollar, the Indian rupee will also go down and its effect will be seen on the country’s economy, that is, the results of this recession are negative from every side. The main factors affecting the Indian market due to this recession are mentioned in the following points.

• Fall of rupee
• Decrease in exports
• FII (Foreign Institutional Investor)
• Expensive import rates

Conclusion

America, which is one of the most powerful economies in the world, experts have predicted a recession in view of its current market conditions, the effect of which will be seen not only on America but on the entire global level. There are many reasons behind the US recession, mainly unemployment, the Iran-Israel war, sudden increase in interest rates by Japan. This crisis in America will affect India, which includes many sectors.

This recession will also have a special effect on the stock market, due to which speculations are being made about the rupee falling. In today’s article, we have shared all the information related to the US recession, which helps us to understand what effect it will have on the common man. If you liked this post, then definitely share it with your friends. What do you think about this recession, do tell us in the comments.

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