A recession is a significant decline in economic activity across an economy that lasts for an extended period, typically defined as two consecutive quarters of negative growth in real gross domestic product (GDP). This downturn affects various economic indicators, including consumption, investment, government spending, and net exports. The causes of a recession can vary, including factors like high inflation, reduced consumer confidence, restrictive government policies, or external shocks.
Key Characteristics of a Recession:
- Declining GDP: A sustained decrease in GDP indicates a reduction in the economy’s overall output and health.
- Increased Unemployment: Businesses facing reduced demand may lay off workers, leading to higher unemployment rates.
- Reduced Consumer Spending: With lower income and job security concerns, consumers tend to spend less, affecting businesses’ revenues.
- Decreased Business Investment: Uncertainty about future economic conditions can lead businesses to delay or reduce investments in expansion or new projects.
- Falling Stock Markets: Investor confidence often declines during recessions, leading to stock market downturns.
Recent Examples:
- The Great Recession (2007–2009): Triggered by the subprime mortgage crisis, it led to widespread financial instability, massive job losses, and a global economic slowdown.
- COVID-19 Recession (2020): The pandemic caused unprecedented economic disruptions worldwide, resulting in sharp GDP contractions, soaring unemployment, and significant government interventions.
Understanding the dynamics of a recession is crucial for policymakers, businesses, and individuals to implement strategies that mitigate negative impacts and foster recovery.