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

GDP data: Contraction can be ignored, but pre-Covid declining trend irksome
While the country is now technically in a recession with two successive quarters of negative growth, it should not be worrisome ...| November 27, 2020, Friday
Did festival demand revive Indian economy's animal spirits in October?
Demand during the festival season helped boost three of the eight high-frequency indicators| November 25, 2020, Wednesday
With technical recession over, is it all well for Indian economy? Not quite
The trouble is with demand. Firms are protecting operating profit - or preventing losses - by pruning jobs and cutting pay| November 14, 2020, Saturday
With technical recession over, is it all well for Indian economy? Not quite
The trouble is with demand. Firms are protecting operating profit - or preventing losses - by pruning jobs and cutting pay| November 14, 2020, Saturday
Govt expands stimulus to 15% of economy, aims to create jobs and help firms
An additional outlay of Rs 180 billion will be made toward an affordable urban housing program| November 12, 2020, Thursday
India in historic technical recession, RBI signals in first ever nowcast
"India has entered a technical recession in the first half of 2020-21 for the first time in its history," the authors wrote. The ...| November 12, 2020, Thursday
Q2 GDP to shrink 8.6%; India to enter recession for 1st time: RBI official
The pandemic-induced lockdowns had led to a steep contraction of 23.9 per cent in the GDP for the April-June quarter as compared ...| November 11, 2020, Wednesday
Indonesia sees first recession in over two decades as coronavirus hits
Indonesia fell into recession for the first time in over two decades in the third quarter as the Covid-19 pandemic battered ...| November 05, 2020, Thursday
Top headlines: Govt staff to get more pay, Tata chases e-commerce deals
From Tata eyeing stake in e-commerce firms to bolster retail segment to World Bank declaring Covid as a catastrophe, Business ...| October 15, 2020, Thursday
Worst recession in South Asia; millions falling into poverty: World Bank
India, the region's biggest economy, is likely to see its economy contract by 9.5% this year, the World Bank report said| October 08, 2020, Thursday