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

Oil slips more than 2% on as recession fears spreads to financial markets
, LONDON (Reuters) -Oil prices dropped more than 2% on Thursday in a volatile week as recession fears dogged global financial ...| May 12, 2022, Thursday
Bank of England hikes rates to 13-yr high, warns of rising recession risk
The pound fell by more than a cent against the US dollar to hit its lowest level since mid-2020| May 06, 2022, Friday
With global finances at risk, can India avoid a repeat of the 1991 crisis?
India may have done well by keeping commercial bank lending to the government within manageable limits, but RBI has been lending ...| April 25, 2022, Monday
Recession risks duel resilience hopes in global economy outlook
BofA reported fund managers were the most bearish they'd ever been about the outlook for growth and JPMorgan Chase & Co. boosted ...| April 17, 2022, Sunday
Jan/Feb market sell-off was an just an appetizer: BofA Securities survey
Global growth optimism, according to the survey findings, was at an all-time low, with recession fears surging in the world's ...| April 12, 2022, Tuesday
Germany faces recession if oil & gas halted, say banks
Europe's largest economy is heavily dependent upon Russia for energy, and nations banks echoed concerns over possible energy ...| April 05, 2022, Tuesday
World stocks dip on war, recession worries, oil falls $2 on reserve release
MSCI's global share index fell 0.17% to 710.22, against a high of 724.49 hit on Wednesday, heading for little change on the week.| April 01, 2022, Friday
Inverted US yield curve no more a worry for markets; here's why
The current yield inversion has more to do with the temporary demand-supply mismatch in the bond market and doesn't necessarily ...| March 30, 2022, Wednesday
Sri Lanka avoids recession in Dec quarter, GDP grows 3.7% in 2021
Sri Lanka's economy grew at a slower-than-expected 1.8% in the 4th quarter of the 2021 financial year, taking its full year ...| March 30, 2022, Wednesday
Anticipated aggressive rate hikes by Fed drive up recession concerns
The Fed kicked off a new tightening cycle by raising the benchmark interest rate by 25 bps to a range of 0.25 to 0.5 per cent on ...| March 27, 2022, Sunday