WHAT IS RECESSION?

Recession

A recession is when the GDP growth rate of a country is negative for two consecutive quarters or more. But a recession can be gauged even before the quarterly gross domestic product reports are out based on key economic indicators like manufacturing data, decline in incomes, employment levels etc.,

Although an economy can show signs of weakening months before a recession begins, the process of determining whether a country is in a true recession (or not) often takes time. A recession is short, but its impact can be long-lasting.

Why do recession occur?

Understanding the sources of recessions has been one of the enduring areas of research in economics. There are a variety of reasons recessions occur. Some are associated with sharp changes in the prices, which lead to steep drop in spending by both the private and public sectors.

Some recessions, like the 2008 global financial meltdown, are rooted in financial market problems. Sharp increases in asset prices and a rapid expansion of credit often coincide with accumulation of debt. As corporations and households get over-extended and face difficulties in meeting their debt obligations, they reduce investment and consumption, which in turn leads to a decrease in economic activity. Not all such credit booms end up in recessions, but when they do, these recessions are often more costly than others. In some countries with strong export sectors, recessions can be the result of a decline in external demand. Adverse effects of recessions in large countries—such as Germany, Japan, and the United States—are rapidly felt by their regional trading partners, especially during globally synchronized recessions.

Some recessions are also a result of global shocks like the current coronavirus-triggered lockdowns, which shut down economic activity in many countries.

Impact of a recession

One of the consequences of recession is unemployment, which tends to increase, especially among the low-skilled workers, due to companies and even government agencies laying off staff as a way of curtailing expenses. Another result of recession is drop in output and business closures. Fall in output tends to last until weaker companies are driven out of the market, then output picks up again among the surviving firms. With more people out of work, and families increasingly unable to make ends meet, there will be demands for increased government-funded social schemes. With drop in government revenues during recession, it becomes difficult to meet the increased demands on the social sector.

The most popular, or most recommended, policy for any country to dig itself out of recession is expansionary fiscal policy, or fiscal stimulus. This can be usually a two-pronged approach – tax sops and increased government spending.

LATEST UPDATES ON RECESSION

EU economy to expand, bouncing back from coronavirus pandemic crisis
European Union economy is set to bounce back strongly this year after the deep coronavirus recession and member states are ...| May 12, 2021, Wednesday
Recession risk looms as Japan eyes state of emergency to contain pandemic
A renewed state of emergency would also cast doubt on whether Tokyo can host the Olympics in July, despite Prime Minister ...| April 22, 2021, Thursday
Q3 GDP growth number: Covid-driven recession over, double dip ahead
GDP is implicitly projected by NSO to slip back into contraction of 1.1% in Q4FY21. This appears to be an outcome of the ...| February 26, 2021, Friday
India looks set to beat recession even as new coronavirus cases loom
India will become one of the few major economies to post growth in the last quarter of 2020, with any improvement in the ...| February 26, 2021, Friday
India's recession exit gains momentum on services, manufacturing
Official data on Friday is likely to show that India exited a recession in the final three months of 2020, with economists in a ...| February 25, 2021, Thursday
Swiss economy seen tipping into recession on Covid-19 pandemic shutdowns
The median forecast was for a 0.7 per cent drop in gross domestic product in the final quarter of 2020| February 13, 2021, Saturday
US economy contracts in 2020; worst performance since 1946
The Federal Reserve on Wednesday left its benchmark overnight interest rate near zero| January 28, 2021, Thursday
India's GDP to contract 8% in fiscal year 2021, says FICCI Survey
India's gross domestic product (GDP) is expected to contract by 8 per cent in 2020-21, according FICCI| January 26, 2021, Tuesday
World's economic recovery gets delayed by slow Covid-19 vaccine rollouts
Double-dip recessions are now expected in Japan, the euro area and UK| January 25, 2021, Monday
Pandemic-induced lockdowns boost household savings to 20-yr high: Report
Extra savings pegged at $200 billion, according to a foreign brokerage report| January 21, 2021, Thursday