Economic Downturn And Financial Crisis

Economic Downturn And Financial Crisis


At the very present moment, whole world is suffering from Covid-19 pandemic situation. The drastic uncertainty has also been generated in the world economy due to this pandemic situation that is leading towards a major financial crisis. Previously, the world economy has faced major financial crisis through great recession during 2007-2008. Due to this, the world economy and financial system have suffered till the year 2010-2012. Followed to that, after one decade, the financial crisis is more likely to happen by disrupting the whole financial and economic system across the globe only as a cause of Covid-19 pandemic situation. However, covid19 itself could not be the only major factor to create an uncertain condition of financial crisis in 2021, the predictions of the financial crisis could be pushed further by several other factors. And, experts are assuming that to cope with this financial crisis, ethical banking practices, and their profitability could be major turning points. Thus, with this article, the holistic picture on predicting the next catastrophic financial crisis in 2021 and the way banking profits could be ethical or helping in controlling the crisis situation could be drawn. 

Background And Concept

Covid-19 pandemic has created the crisis for global economics as in these two years people across the world has faced several situations, like, lockdowns, trade collapse, closure of the hospitality sectors as well as border closure. This kind of situation has further created the volatile situation of the financial market. Most of the world therefore has faced several financial crises due to this negative effect in this time. However, the solutions for this global financial crisis were depending on the policies and regulations of the respective governments (Vizardet al. 2019). Therefore, it can be stated that as every nation’s recovery matter and could structure the economic outlook of those respective countries. Along with that according to the economists and assignment maker around the world, the success or failure of a major economy could create some impact on smaller or developing nations either positively or negatively. Concerning this discussion, it can be seen that the US economy as well as some other developed economy is hoping for the economic development in later period post Covid-19. In this matter one can easily follow the IMF report where they have projected the financial condition for the year of 2021. As per the world economic outlook of the IMF, the global economy could expand with the rate of 6% in the year of 2021 which could be increased from 5.5% growth rate in January (Isaksen, 2019). IMF has stated that this could be possible as recovery due to the financial crisis of these economies could be possible faster-than-expected.

On the other side, this has been seen that during the global recessions due to covid-19 pandemic most of the economy was shatter and it was expected that the entire world economy could face financial crises. But due to the proper stimulus of both fiscal as well as monetary policies, the economies of China, US as well as Western Europe has seen the positive growth in GDP by 6.4%, 8.4% and 4.5% respectively. Again, the countries of Latin America and the Caribbean or LAC as well as countries of Europe and Central Asia or ECA has seen the GDP growth by 4.4% and 3.6% respectively (de Oñaet al. 2018). Therefore, from this overall situation it can be stated that developed countries in this way have the capabilities to recover their entire economy with a short span of time. But the problem could be faced by the poorer countries as well as developing countries. As per the predictions of the World Bank, most of the developing countries could face issues in 2021 and global recessions can take place at that time. This has been predicted that every economy more or less could face an economic downturn which could create constraints towards the developmental goals and poor people from developing or underdeveloped countries could again face extreme poverty. Therefore, the first quarter of 2021 of these countries could face economical headwinds in different sectors as travel and tourism sectors as well as hospitality industry has been totally shattered. Along with that, there were subdued capital flows as well as tight financial conditions (Bernanke, 2018). Based on this it can be easily predicted though developed economies could solve their problem easily with a positive note in 2021 aftermath of Covid-19 affect on universities underdeveloped countries could face serious issues both economically and financially.

Economic Downturn And Financial Crisis

In relation to the above discussion, it can be said that an economy or world economy as a whole would face economic downturn or financial crisis fundamentally due to government inefficiency. Failures in both national as well as international financial deregulations, global imbalance persistence alongside absence of certain international monetary policy or system and inconsistencies among world trading with fiscal and monetary policies are the key driver. All these factors drive the economy to face major crisis (Ahnet al. 2018). Previously, before the pandemic situation, it could be found that the world economy has been growing. After coping with the great recession during 2007-2008, world economy has faced significant growth and increase in employment rate, GDP growth as well as national income and so on. The world economy has faced a global growth forecast of 3.1% in 2018, reflecting robust growth. The increase in GDP and unemployment rate in last decade has stabilized the world economy by helping out millions of people from poverty, specifically in the fast-growing economies of South Asia. Activity in advanced economies has also seen anticipated growth by 2.2% in 2018. Additionally, growth has been visible in emerging markets as well as developing economies with projection to strengthen up to 4.5% in 2018.  Get to know more from management assignment help of SourceEssay.

However, on the other hand, although it is seen that economic growth across the world has been stable prior to pandemic situations or financial crises before 2021. However, in reality, it is observed that there have been certain factors and economical events that have pushed the pandemic situation to create larger scene of financial crisis in 2021 (Zouaghiet al. 2018). US’s increase of tariffs on certain Chinese imports and China’s retaliation by increasing tariffs on subset of US imports have slugged down the global financial growth even before the pandemic situation occurred. Softening inflation, subdued demand and investments for consumer durables throughout advanced as well as emerging market economies with firms and households being continued to hold back long-run spending has also one of the reasons that triggered the financial crisis. On the other hand, previously events like; UK’s leaving the EU (Brexit Impact) has created recession in late 2016 and early 2017 by making the economic and fiscal growth to be slow down for minimum of five years due to investment reduction.

On the contrary, in case of emerging economy of India, it could be found that even before Covid-19 pandemic phases, the economy was at its worst ever deceleration phases. This is due to economic imbalances, poor governmental policies and financial planning and projections. Alongside these national economies’ condition; trade and technology tensions, muted inflation, mixed policies cue and shifting in risk appetite are the leading factors that provoked this financial crisis situation. Alongside disruption to trade and tech supply chain, disinflationary pressures, global political risks and abrupt growth in risk sentiments have been still there in the world economic environment, when Covid-19 hit hard leading the global financial system to be disrupted. These factors as a result have created disordered financial market with massive volatility and vulnerability, which pushed this pandemic situation to make the financial condition to be worsened (Martinezet al. 2019).  Therefore, with the above discussion and accounting behaviour finance, it is certain that only Covid-19 is not the factor that played behind predictive catastrophic financial crisis in 2021 as the financial sluggishness was still there in the global economy; the pandemic situation has only pushed it further.  

Predictions Of The Catastrophic Financial Crisis

It is stated that the entire world is experiencing the greatest recession in last 74 years due to the effect of Covid-19 and it has directly affected the livelihood of the people. Now this is important to know about the financial and economic conditions of the world in 2021 so that one can understand whether there could be any kinds of serious financial crisis or not in that year and after that year. The discussion is as follows:

  • This has been seen that most of the countries has faced lockdown in first quarter of 2021 which causes the diminishing support of the fiscal policies and increase both private as well as public sector debt. But still as the developed economies, like the US as well as European unions were able to survive with strong economic aspects, the world GDP growth has increased about 4.6% in 2021 after continuous declining in 2020 about 4.2% (Tooze, 2020).
  • In 2021 it can be predicted that most of the economists as well as policymakers in the debt market will shift their goals to more sustainable environment so that they could easily maintain both economical as well as sustainable environment. This is because emphasis on ESG goal or environmental, social as well as corporate governance goal could help the governments of the respective countries to mitigate the financing difficulties of commodity or energy markets and new investment could be made due to the contribution and accomplishment of ESG goals.
  • This has already been discussed that global financial sector especially the advanced economies could avoid any kinds of major financial crisis in the year of 2021, but with this situation they could face banking issues as it has been stated that banking risks could be enhanced (Boyceet al. 2018). This is because due to the global financial crisis the regulations and policies have been reformed which has improved the liquidity conditions throughout the global banks. Therefore, the lack of credit requires the bank to prepare themselves for meeting the crisis of high unemployment and enhanced bankruptcies.
  • At the second half of 2020 the prices of the commodity products have been increased due to the rebounded global economy. This kind of situation could pressure the margins which could further lead to the high prices for the finished products in the year of 2021. At this time the disruption in supply-chain process could be seen which needs to be resolved slowly. In accordance to this kind of situation it can be stated that monetary policies could be accommodative and central banks will lean towards the FAIT policies in this context (Economouet al. 2019). To know more contact finance assignment help of SourceEssay.
  • This has been discussed from a long time whether economy will face major financial crisis in 2021 or not. Following this discussion, it can be stated that the US economy could be able to start in 2021 at slow rate and will start to recover from the economic downturn. This slow growth therefore could increase at the second-half of 2021 where the US economy could see some expected growth in their GDP. This entire situation therefore could help the undeveloped as well as developed nations to recover their economy as most of the economies of those countries depend on the US economy.

Therefore, it can be predicted that the world economy wouldn’t face more financial crisis in 2021 as there could be certain developed economies which could provide major support and strength to the weak economies (Fujiharaet al. 2017). In this way the world economy overall could recover in 2021 at slow rate.

Ethical Banking : Concept

Significantly, in accordance with the above discussion and critical evaluation, another argumentative standpoint can be created that ethical banking could be beneficial in counterattacking the catastrophic financial crisis that world economy is predicted to be seen in 2021. Fundamentally, the concept of ethical banking has exhibited that it involves consciousness of the way banking practices are affecting the society and environment as a whole. Financial institutions that focus on ethical practices seek profits like other conventional financial institutions. However, they strive for generating earnings without sacrificing any of the principles and processes that could create negative impact or harm. Therefore, it is certain that banking profits are indeed required to be ethical (Climent, 2018). More concisely to observe, ethical bank is different from conventional banks as they seek profits by promoting projects investment with ethical and social impacts. In this context, experts have developed contradictory viewpoints as some of the market experts believe that ethical banking profits are not to be considered as profit as they only have the sole purpose of ethical social impact. And, conventional banking is the most appropriate practice of financial system. Conventional banking has higher profit earnings growth for financial institutions with liquidity and solvency factors at the core.

On the other hand, ethical banking movements towards greater environmental as well as social responsiveness and responsibilities, have increased awareness of influence, which ethical banks could exhibit through their lending policies. Thus, keeping this in consideration, in present time with emerging issues and financial crisis through Covid-19 pandemic in 2021, it can be said that ethical banking would facilitate and proper measurement. Ethical banking would give encouragement for transparency while helping in building strong communities and establishing set of principles that would further govern the way and to whom the financial resources would flow (Khanand Mohomed, 2017). Although at initial stage, it could be seen that ethical banking profits would not be highly significant and might have narrower picturesque than conventional banking. Moreover, it could also be said that financial crisis would seriously damage the banking and financial sectors’ reputation all across the globe alongside its profitability and insolvency risk. This may lead several conventional banks to adopt a sustainable banking approach with the goal to balance long-term profitability with short-term performance pressure neutralizing in economy.  However, to cope with the predictable catastrophic financial crisis in 2021 due to the pandemic situation, ethical banking would be the best solution. Specifically, in terms of involved movements like; ethical investments, impact investments, CSR investments alongside fair trade movements and ethical consumerism, ethical banking practices could help the national and global economies and nations. That could also be observed in terms of reforming and strengthening their economy and financial system and structure. With the aim to create more highly equitable cost distribution in society alongside economic and financial equilibrium position in the market during this crisis, ethical banking would focus on impact investments (Callejas-Albiñanaet al. 2017). Thus, by emphasizing the practices of ethical banking in correspondence to this current financial situation across the globe, it can be certainly said that all the activities executed and initiated by ethical banking practices would be beneficial and profitable in long-run. Get to know more about ethical banking from SourceEssay coursework help online experts.

Effect On Ethical Banking During 2021 Financial Crisis

In context to the above discussion, it is clear that adopting ethical banking practices would be effective to cope with the currently emerging financial crisis in the world economy due to the Covid-19 pandemic. With the current economic uncertainty, global financial banking and financial system have become disrupted. Practically to see, in contrast to the 2008 financial crisis where banks were blamed for being aggressive and irresponsible, banks are now being perceived as trusted institutions. It is not only the businesses and consumers that have put their trust on the banks and financial institutions to cope with the recessions, the governments across the globe have also turned to banks (Saidet al. 2017). In effort to deploy money to the areas where it is needed more, the government has turned to banks that are also opting for ethical banking practices. And, this is continually being to form the backbone of the financial system to distribute additional aids, in terms of Covid-19 related spending packages. Therefore, it can be said that ethical banks are not entities that are striving for maximizing profitability rather than focus on social welfare. On the other hand, it is seen that growing social and environmental consciousness due to pandemic situation and the fact that the lockdown period has made people to reflect on the effect of the organizations that have been patronize. That is also by enhancing the interest in areas like; sustainable or ethical banking.  And, as a result of ethical banking effecting on the financial crisis, the key impact can be found through one of the greatest growth areas that is impact investing (Ibrahim, 2017). Market research across the globe regarding exploring ethical funding as solutions for financial crisis due to pandemic situations has shown that ESG investment is the most resilient. Environment, Social and Governance (ESG) investments are most effective financial solutions to counterattack the catastrophic financial crisis that has made the global market to crash and interest rates to be fallen.  Additionally, supporting the small businesses and providing corporate donations, grants have also exhibited sustainable effects through the practices of ethical banking during the currently observable catastrophic financial crisis. And, by doing all these sustainability banking activities to cope with the emerging financial crisis, it can be said that the banking profits in long-run would be ethical. And, it would prove to be strong for giving new direction towards financial and economic reformation during post-pandemic financial crisis (Pérez, 2017).


Thus, based on the above discussion and critical evaluation, it can be implied that the next catastrophic financial crisis that is highly predictable in 2021 due to covid-19 pandemic situation would be highly impactful. Specifically, the negative impact of the emerging financial crisis would create a global recession and economic growth would be slowdown. Particularly, developing or emerging economies like; India, Bangladesh, and Pakistan alongside underdeveloped nations like; African economies would face major financial downturns. And, the prime reason for this could be poor monetary policies, economic reformation by the government. On the other hand, the developed economies of China and USA have already paved the path for coping with the financial crisis. Despite having lower growth, the economies of these developed countries are moving fast. Dozens of US states are loosening restrictions and making industries that have been closed due to lockdown reopen while paving the path for money circulation and economic equilibrium in the market. In this context, ethical banking could be highly beneficial as impact investing and sustainable banking help in reforming economies and showing governments across the globe to review the fiscal and monetary policies to fight against the financial crisis. All the developing and emerging economies markets are recommended to comply with banks for ethical banking purposes to strengthen the economy and financial system from the coming financial crisis. 

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