What is a Recession?

//What is a Recession?
What is a Recession? 2017-10-10T02:45:43+00:00

Definition: A recession is defined as a substantial downturn in economic activity that lasts for six months or longer. This is typically measured by a decrease in real gross domestic product and real income or employment.

What Does Recession Mean?

What is the definition of recession? Economic activity is a country’s overall sales, GDP, employment, and other similar metrics. When these values experience a sharp decline in performance for a period longer than two quarters, the country is in recession. However, many economists do not adhere explicitly to this criterion and use other intangibles, such as negative outlook, as a requisite for determining if a given country is in a period of recession.

Often businesses defer to the opinion of economists when determining whether the country’s economy is declining. Ironically, businesses will often exacerbate the effects of a recession by preemptively laying off workers, halting hires, and decreasing spending to insulate themselves from the effects of the upcoming downturn in the economy. Similarly, consumers can exacerbate the effects by withdrawing their investments or refusing to make additional purchases and selling their assets in fear of the item’s pending depreciation.

Example

Country XYZ has sustained a period of economic growth from 2008-2015. In the first quarter of 2016, Country XYZ began to see a downward trend in economic activity. This trend began to accelerate rapidly, affecting many foreign markets as well. Country XYZ’s currency, GDP, and total growth were all in a state of decline as its unemployment began to soar.

This lasted over a period of several months. Economists that had been tracking the markets determined that the trend would continue for several more months even in the midst of corrective action. When measuring consumer and business attitudes towards the economy, economists discovered a high level of pessimism. Therefore, it was announced that Country XYZ was in a state of recession.

Summary Definition

Define Recession: Recession means a period of at least two quarters where real GDP or other economic factors decline significantly.