In order to understand the effects of recession on particular companies in New Zealand, it is better to understand the factors that lead to recessions as it would lead to a better understanding of the solutions that would be provided in the latter part of the essay.
A recession according to King and Cushman (1997) is a term that is used by the economists for different phenomena of problems that could arise in an economy. Generally a recession refers to a time when the overall productive potential of a country (or a region) is compromised. The term recession may also mean that a supply shock is experienced, the increase in GDP/GNP is negative, or the unemployment rate and inflation have increased to a considerable extent. It is important to note that a recession, when it occurs, does not just affect the domestic industry or economy; rather it has implications that are global, as Allen (2001) relates. According to him, the advent of globalization has led the countries to come close together in terms of the international trade. The consequence of this is that the economy of one country has a large and direct effect on the economy of another.
Because of international trade, as mentioned above, a global crisis could be caused. An example of a global crisis would be the sub prime crisis that occurred in the US in 2008 as Walden (2008) relates. In accordance with Shankar (2008), the subprime lending fell in the US which meant that the banks and the financial institutions in the US went bankrupt. Because of the uncertainty that was later caused due to the bankruptcy, the investors lost confidence in the US stock markets. The banks were also not able to cooperate with each other and so a ‘liquidity crisis’ was the result. Since the US is a key player in international trade, the bankruptcy at home had implications on