According to a recent research by Deloitte Analytics, there will be around half a million businesses that will go out of business in the next seven years due to the 2021 economic crisis. However, it is not just businesses that will suffer due to the economic crisis, government offices, hospitals, finance sector and even manufacturers themselves will go out of business due to the economic slowdown. This article highlights the reasons for such an occurrence.
The first factor to note is the weakening of the dollar. This makes the export market very weak, which directly affects the manufacturing industry. The weakening in the dollar makes many products imported from other countries more expensive, which directly affects the economy.
The second factor to note is the slowing down of domestic spending. This means that businesses are cutting down on business expenses which leads to a reduction in employment. As the government cut back on public spending, the demand for domestic employees will be lower. This directly affects the economy as businesses will not be able to employ as many people.
Another major reason is the slowing down of the economy caused by the share price fall in the past two years. The decline in the stock prices has resulted in fewer investors buying the stocks. This again leads to less buying by the banks and other financial institutions, which in turn lowers the value of the real estate as compared to the mortgage. Consequently, property-related industries like construction, real estate and engineering are losing their potential customers and earning potential.
A further major concern is the increasing number of insolvencies. According to reports, there have been over 20 million insolvencies in the past two years. Most of these businesses were related to the non-performing industries. The most affected industries were the manufacturing, infrastructure and service sectors. In order to prevent a recession from affecting the economy, the government must take immediate action and clear these problems.
The solution lies with the government, as it can stimulate the economy and keep the capital flow intact to avoid economic contraction. It should also continue with its growth plan, which should include tax reforms, monetary policy and structural reforms. These are important to control inflation. In addition to this, the government must continue to support the economy with its stimulus package. This will help businesses absorb the bad debts which could result in the liquidation of some of the non-performing industries.