A recession refers to a significant decline in overall economic activity that persists for a prolonged period. It is a macroeconomic term used to describe a period of economic contraction resulting from reduced production, diminished purchasing power, and declining trade and investment. Typically, a recession is characterized by a decline in the Gross Domestic Product (GDP) for two consecutive quarters.
During a recession, there is a contraction in various economic indicators, such as employment, industrial production, consumer spending, and business profits. This leads to a decrease in consumer confidence and consequently results in decreased spending and investment. As a consequence, businesses may scale back operations, cut jobs, or even face bankruptcy.
The causes of a recession can vary, but they often involve a combination of factors, such as decreased consumer demand, a decline in investment, financial crises, or a significant external shock. Recessions can have significant ripple effects across multiple sectors and countries, including increased unemployment, reduced wages, falling real estate prices, and stock market crashes.
Governments and central banks typically implement measures to counteract recessions, such as fiscal stimulus packages and monetary policy interventions. These measures aim to boost spending, promote investment, stabilize financial markets, and stimulate economic growth.
Recessions are an inherent part of the economic cycle, alternating with periods of expansion. Their impact can vary in intensity and duration, and their effects can be felt by individuals, businesses, and governments alike.
