What is a recession?
Recession (from Latin. recessus - retreat) is A phase of the economic cycle characterized by a moderate, non-critical decline in a country's output, also called a recession is a slowdown in GDP growth or its decline, accompanied by rising unemployment, lower bank lending and reduced investment in fixed capital. A recession is usually a precursor to a crisis in the economy.
Why does a recession occur?
Causes of recession may include:
- natural development of the economy, when after strong growth, having exhausted the possibilities for upward movement, the economy needs a respite;
- wars and feuds;
- sharp changes in commodity prices, in particular oil prices;
- undermining customer confidence;
- uncertainty of entrepreneurs and investors;
- growth of domestic and external debts (possible consequence - default);
- falling stock and capital prices.
What kind of recessions are there?
Depending on the causes, three types of recession are distinguished:
- Unplanned recession
This type of recession comes as a result of some unexpected events: wars, a sharp drop in the world price of oil, gas and other fossils. As a consequence, a shortage of financial budgets and a decrease in the level of GDP. This type of recession is the most dangerous, due to the impossibility of predicting it in advance, as well as the difficulty in determining an effective methodology for recovery from it.
- Recession on a political or psychological level
This type of recession results from the increased distrust of the consumer population, entrepreneurs and capital holders. It is a consequence of decreased purchasing activity, decreased investment and decreased value of securities. This type of economic recession can be overcome quite easily by regaining the confidence of buyers, which is done by reducing prices, interest rates and by implementing various psychological techniques in practice.
- Recession as a consequence of a country's external debts
As a result of such debt, there is a decline in prices and an outflow of money from the country. Such a recession is recognized as the most dangerous and can last for many years.
What characterizes a recession?
Characteristic signs of recession are:
- Gradual, without sharp jumps, increase in the unemployment rate.
- Industrial output is falling, but companies are functioning, producing at lower volumes.
- Falling stock indices.
- Rising inflationary indicators.
- Growth of capital outflow abroad.
In today's economy, a recession is characterized by a non-critical drop in key indicators over two quarters.
When does an economic recession occur?
The economic cycle consists of four phases:
- growth (uplift),
- stagnation (stabilization, absence of any dynamics),
- recession
- crisis
The length of the economic cycle in the current realities is 10-15 years.
What are the effects of the recession?
- The main characteristic effects of a recession are:
- Falling production in the state.
- The collapse of the financial markets.
- Reduction in the number and size of loans issued by banks.
- Rising interest rates on loans.
- Rising unemployment rate.
- Reduction in the income of citizens.
- Growth Inflation.
- Systemic price increases.
- Increase in public debt.
- Falling GDP.