Major economic recession and slowdowns at world levels

By BYJU'S Exam Prep

Updated on: September 13th, 2023

Nowadays the economy of India and the world is unduly stressed. To understand the genesis of today’s economy of India and the world, let’s understand all the major economic crisis that has occurred so far. This article discusses ‘Major economic recession and slowdowns at world levels’ which is an important topic of Economics Paper of UPSC, State PCS and other government examinations.

Major economic recession and slowdowns at world levels

  1. Great Depression 1929-39
  2. OPEC Oil Price Shock 1973
  3. Asian Crisis 1997
  4. Financial Crisis 2007-08

Great Depression 1929-39


  • The period of 1920-29 was marked as ‘the roaring twenties’ because of the expanding economy and accumulated the national wealth of the USA.
  • New York stock exchange market flooded with savings into stocks. It reached its peak in 1929.
  • However, the economy was not in great shape due to the high rate of unemployment, decreased production, low wages, rising consumer debt, droughts, excessive large loans and hyped stock prices.
  • This created the condition of a mild recession in 1929. Lowered consumer expenditure slowed down the production. At the end of the year stock prices reached to exorbitant levels.
  • The stock market crashed on October 29, known as ‘Black Thursday’. Panicked investors traded their stocks at ever-low prices. It was the beginning of the Great Depression.


  • Waves of depression rippled across the US economy.
  • By 1933, 13 million people were unemployed accounting to almost 25%. Those who had jobs faced frequent pay cuts.
  • One-third of banks went bankrupt. People used to stand in long lines demanding their savings. Astonishing poverty added further degradation.
  • The overall international economy was in a state of decline.

Impact on India

Indian wheat was getting exported to European countries at that time. Due to the Great Depression, wheat prices fell down. In this crisis time also the British government in India did not lower the tax. This resulted in distressed conditions of the farmer.

OPEC Oil Price Shock 1973

 OPEC members decided to stop oil export to the USA. On October 19, 1973, twelve members entered into the agreement. After this, prices of oil quadrupled. Prices were high even after the end of the embargo. This saw an unprecedented hike in oil prices.


  • The US in 1971 decided to take off the gold standard. This prevented other countries from redeeming the US dollars in return of gold.
  • This sudden decision of President Nixon resulted in skyrocketing prices of gold and a decline in the process of the dollar.
  • As OPEC countries had their contracts in US dollars, a fall in dollar led to a fall in their revenue.
  • The immediate reason for halting oil export was USA’s support to Israel against Egypt in the Yom Kippur War.


  • US government’s wage-price control measures, the Federal Reserve’s monetary policy all resulted in recession and stagflation.
  • Because of the compulsion of keeping high wages, the company fired workers to cut the cost.
  • Inconsistent policies of Federal led more confusion for businesses to plan the future.
  • The oil embargo and companies’ insistence for high prices worsened inflation.
  • Domestic production of oil in the US declined. This hiked gas prices, resulting in less amount of money left with the people to spend, further worsened the recession.
  • This had implications in shaping geopolitical relations, especially with OPEC countries.

Impact on India

            OPEC countries refused to give any differential treatment to India even though we shared good relations with them. India was affected severely due to huge import bill amounting to around $1350 million in 1974.

Asian Crisis 1997

This is one of the major global financial crisis originated in Thailand and destabilized Asia and World economy. It is also termed as ‘Asian Contagion’. It triggered because of a series of currency devaluation.


  • Thailand took the decision to not peg local currency ‘baht’ to the US dollar.
  • It resulted in devaluation East Asian currencies. This led to a fall in the stock market, even the majority of international stocks declined.
  • The root of this decision by East Asian countries goes back to Plaza accord of 1995. According to this, the US, Germany and Japan coordinated monetary policy so as to let the US dollar appreciate with respect to their own currency.
  • Competitive Japanese and German exports challenged East Asian exports. This led to a decrease in exports and company profits in East Asia.
  • It was getting difficult for East Asian countries to peg their currency along with high borrowing cost in US dollars.
  • Hence, they ended their pegs and devalued currencies.


  • The impact of crisis felt across Asian and reached the USA, Russia and Europe.
  • The crisis exposed the inability of states to perform regulatory functions and handle the pressure of international forces.
  • To ensure the stability of currency many countries forced to adopt protectionist policies.
  • World monetary authorities, major banks, nations bought US Treasuries heavily as a part of global investments.
  • Nonetheless, this had positive impacts in terms of reforms in the currency market and national account management in Thailand, Indonesia, Japan and South Korea.

Impact on India

            India managed to insulate itself from the Asian Crisis of 1997. It used its experiences from its own 1991 crisis. Because of factors like controlled external debt, manageable current account deficit and limited exposure of financial intermediaries, India’s maximum macroeconomic indicators were showing the stability of the economy.

Financial Crisis 2007-08

This is considered as the most severe financial crisis world faced after the Great Depression. It was triggered by the fall of Lehman Brothers in the USA. It shattered the world economy and took decades to return to normal.


  • Its immediate trigger point is subprime mortgage crisis caused by contracted liquidity in the global credit and housing market.
  • As cheap credit was available, people borrowed on a huge scale to tap rising prices of property. Because of high energy prices in the global market and an eventual increase in inflation, the gap between income and debt widened.
  • Property rates fell, leading to crumpled asset value held by financial institutions. State governments of the USA and UK had to intervene in order to rescue the banking sector from collapse.
  • Thus boom and bust cycle in the housing market, speculations, high-risk lending, flawed credit rating are some of the reasons.
  • Flawed regulation with excessive liberalization amounted to spiral in crisis.


  • For the short term, governments had to pump huge money to bail out banks to avert their complete collapse.
  • It triggered huge withdrawals from the stock market.
  • There was heavy current account deficit in the following decades in the US, also investors lost confidence having serious consequences.
  • Other impacts were reduced wages, economic and political instability all over the world.

Impact on India

            India was not directly exposed to the financial crisis. However, the global recession had its repercussions on the Indian economy. The main impact was on trade and capital flow. India’s export to the US affected in jewellery, diary and other services. Indian companies faced hurdles in raising money abroad. All this had an impact on the exchange rate.

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