Current Financial Conditions and Industries - Essay Example

CURRENT FINANCIAL CONDITIONS & THE INDUSTRIES Introduction As per a proverb "Economist are pessimists: they have predicted 8 of the last depression" (Barry Asmus). Believe it or not this proverb tells a lot about the economists and their expertise. We know that Economics is the name of money and consumption; more precisely we can define economics as "How to earn the money and how to consume it" which is known as the main concept of economics. Arrival of financial Crisis (Main Body) Before the arrival of the financial crisis the economy of the entire world was going with a very decent pace as, different economic indicators showed green signals for about every economy. Satisfactory balance of payment, underestimated unemployment rate and foreign direct investment (FDI) are some of the indicators which are on top of the building. The world leader, who dominated the world at that time, was USA (Still Dominating) had a very strong economy and currency. The global financial crisis crunch came on screen in September 2008, when a number of American giant financial institutions failed to sustain or merge with some other institutions mainly due to not meeting the regulatory requirements or inability to comply with them pertinently. Due to the dominating power and instinct of USA, the country must leave a positive or negative impact on the world economy whenever the country's economy plunges or hike, because the country provides a platform to most of the countries to indulge in exports and imports with each other. American economy mainly emphasizes on credit as even, about every household borrow money for homes and loans frequently. Government of USA didn't apply any limit on the credit cards of the banks which is the main reason the current credit crunch hit them badly. The failure of the major financial institutions like Lehman Brothers and Morgan Stanley and the mortgaging companies like Fannie Mae and Fredric Mac played a vital role to push the United States of America towards the brink of default. The severe crisis in USA left a very bad impact on the economy of the world as a whole and after the plunging of the USA's economy, the economy of every country envisaged a deeper recession. Impact of Financial Crisis on United Kingdom and Current Financial Health: United Kingdom (U.K) is one of the countries which are badly hurt by the current financial turmoil which is the 2nd worst after the 1930's great depression. The estimated gross domestic product of Britain is 1.275 trillion which is 0.63% higher as compared to the last year but the main concern for the country is its deteriorating currency value because the sterling has collapsed against major global currencies by 30%. The economy of UK is in great recession, the said argument can be observed from the current forecast by International Monetary Fund (IMF) for the economy of United Kingdom. The IMF has revised its GDP growth for UK FY 2009 -1.5% to -2.8%. The largest industry in Britain is the financial industries which are the main victims of the financial crisis. The financial sector of the United Kingdom slashed hundreds of thousands of jobs across the country which crosses the amount of 6 million people. A year ago finance officials thought that the British economy had become particularly resilient to shocks, but after the shrinking currency value and persistently condensing deposits in the banks, the perceptions seem to be not working for the Britain. The financial constraints mounting pressure and fear of bankruptcy still intervenes between the banks and borrowers, as the banks of UK are still reluctant to lend the money to the borrowers. The current interest rates of UK's banks are 1% but it is unable to attract the foreign investors as well as the domestic investment influences them to cut down the interest rates further to stress the investors to put their money in the banks. Recently the US did the same and cut the interest rates to 0.25% merely to attract investments. United Kingdom is one of those countries who are heavily relying on the exports and the exports are collapsed severely all over the world, the 1929's financial crash was one of the evidence of export collapse and protectionism. The chancellor of exchequer Mr. "Alistair Darling" seems wonderfully optimistic about the recovery of the economy; he totally rejected the negative anticipation from IMF and said that the economy will shrink in the year 2009 by 3.5 percent, but we will see a growth of 1.25 percent in the year 2010 because as per him "There can be no quick fix or overnight solution of the abating economy". The prime minister of the country Mr. Gordon Brown says that. "We will support investment in the growth industries of the future on which Britain's infrastructure will be built" Recently the government of UK and Bank of England (BOE) took a major step to stabilize the economy which is to increase the tax rate by 50 percent, as per their consensus higher income tax rate will ultimately positively affect on the Government's treasury. The Government estimated that we will earn 3.6 billions from the upcoming tax policy. The chancellor said that up to half million jobs would be saved by the policy measures taken by the treasury and BOE. Another positive decision took by Alistair Darling, which is literally a great sigh of relief for the economy of Britain. According to him the government guaranteeing that everyone under age of 25 who has been out of work for 12 months will be offered a job because the government does not want to repeat the history again of the year 1980, where a whole generation of young people was jobless. Mr. Darling mainly emphasized on the creation of jobs within the country in the budget like he intends to fund the Job Center plus an additional amount of 1.7 billion. Apart from the job creation policy the government has taken measures which urges the export graph to increase, such measures include the price cuts form the purchasing of a new car almost 2000 have been cut down from every new car purchased. Some green signals are now envisaged for the UK's economy in the second quarter in the current financial year as the medium term business confidence rose to 91.2 in April from 89.9 in January. Conclusion (1) Current Financial crisis, which is said to be the 2nd worst after the World War II great depression grabs every country of the world in its fatal claws. Financial officials and economist are hopeful that we will overcome on the economical crisis and economy gets stabilize before the arrival of the year 2010. A $5 trillion stimulus package has been announced in the G20 summit where the top 20 economically strong countries participated and promised to pledge the money for the entire world which is really a positive sign for every economy to coming back on track. UK government intend do take meaningful decisions for the economy, if such measures and policies get implemented then there would be an ample chance for the UK economy to recover quickly than any other European economy, and gain its previous health and stability. Travel and Tourism Industry Introduction: The traveling is an essential part of our daily life. A person spends a big part of his income on traveling. Some have alacrity to travel because those people always want to see new and diversified things in their life while some people travel to spend their holiday effectively as the holiday provides satisfaction to the tourist and traveling gives him an opportunity to best utilize his holidays through extensive traveling. Travel and tourism industry has a leading position in many countries mainly due to its ability to create surplus for the economy. Travel and Tourism industry is counted as one of the most important resource of income and foreign exchange. Travel and Tourism business mainly emphasizes to attract the foreigners. Malaysia and Switzerland are two of some countries which are the first priority of any foreigner because of the natural beauty of the country. Travel and tourism business definitely helps the country to increase its foreign reserves which eventually boost the foreign investment graph of the country. Impact of Daily Visitors on Travel Industry: Since the past few years people are very fond in traveling which makes it possible the industry of tourism and it is equally beneficial for the growing economy, which was the main resource to generate revenue for the Government. Due to economic crisis all over the world, a number of Jobs has been lost and badly hurts even the biggest industries like tourism which generated $38.8 billion last year in United States. The industry got deteriorate by 1.6 percent in the year 2007, due to the record gasoline prices which urged the people to cut down their expenses to survive and also cut down the spending on the traveling which ultimately induced the graph of visitors to condense. As per the statistics the daily visitors' quantity fell by 4.3 percent in 2007 and manifest a figure of 70 to 74.1 million in the year 2007 due to the record gasoline prices. It is estimated that the financial turmoil also suppress the industries to cut down their traveling expenses, which consist of a large part of the company's administrative expenses. Same can be assessing from the consumer spending on daily traveling FY 2008. The spending in the year 2008 was down by 5 and 5.9 percent as compared with the spending of the year 2007 for out of state visitors and for the visitors in Ocean Country respectively. Tourism industry officials are very much concerned with the current deficit of the industry. Worldwide traveling industries like New Jersey and Corzine are facing a budget deficit of $7 billion and $7.5 billion in the current year, due to less consumer spending. As we mentioned earlier that due to the current financial slump hundreds of thousands of jobs are lost and people live their life from hand to mouth, so in this scenario one cannot afford such heavy spending. A tourist from Holland states that "Combined with a global recession, the protesters, which have gone for month, are creating and causing serious worries in the travel and tourism industry". As per him mounting oil and fare prices and the fear of more bankruptcy halts the peoples to travel even on those ones' who visit another country just to check the weather report. The Finance Minister of "Greece" Yiannis Papathanassiou said that: "It is unclear and bit difficult to say that how badly the financial crisis would affect the country's vital tourism industry as the liquidity crunch hits potential vacationers" He also said that the Business is down because the people of almost every country are not willing to hang out in the city center after work as they were once used to for it. Travel and tourism official seems quite optimistic in their approach and believes that the current downturn is for short term and the industry will be back on its previous momentum soon as soon as the economy of the world back on track. People are not willing to deposit their money in the banks so how are they expected to travel extensively as they previously did The day visitors positively affect the tourism industry in the different countries as the increase in frequency of day visitors' results in increasing the profits of the tourism industry. Conclusion (2) Due to global financial constraints, almost every industry gets hurt by the current economic condition; traveling and tourism industry is one of them, which was doing a great job 2 years back to aid economy but the financial crisis assault on it, which is the backbone of the economy and now the said business is in great recession, which needs immense care and such strategies which strengthen this business again, which is the best source of revenue for the government of any country. Read More