Definition Of Recession
First Published : May 13, 2009 ADawnJournal.com
Simply put, recession is the opposite of economic growth. A recession can be defined as a decline in the GDP (Gross Domestic Product) for more than two consecutive quarters spreading across the country or across the globe.
GDP measures the performance of an economy. You get GDP by adding goods and services produced within a country’s borders in a year.
Signs Of A Recession
You will see the following when a recession occurs:
– Demands for products and services decline
– Goods and products start piling up in the factory, as no one wants to buy them
– Firms start to lay-off employees, as there is no need for full-scale production due to unsold inventories
– Unemployment starts to rise
– Real income declines
– Business profits and confidence start to plummet
– Investors hold off on investing new money
– Goods and services start to get heavy discounted, as no one is buying anything anymore
– Government start to borrow money
– It’s a lose-lose situation for everyone
What Causes Recession
Recession can be caused by internal and external factors.
Internal or Domestic factors: Higher interest rates can cause a recession, as it discourages consumers from spending and therefore factories shut down, resulting in lay-offs. Examples of other causes include harmful government policies, a sudden increase of food and resource prices, natural disasters, and terrorist attacks.
External Factors: High oil prices, wars, global political instabilities, currency crisis can cause a recession as well.
What Is A Depression
A depression is kind of a recession but on a large scale and has a greater impact. Here are the common characteristics of a depression:
– Lasts longer
– Much larger decline in economic and business activities
– Real GDP usually declines by more than 10 percent
– Causes panic and public fear
The Great Depression, as it is commonly known, was the last depression the United States and many industrialized countries experienced from 1929 to 1938. During that period, the unemployment rate in America reached 25% and the GDP declined by 33%. The world hasn’t seen anything like the Great Depression in the industrialized nations since. Millions of people were unemployed, homeless, and facing starvation.
The Asian Financial Crisis of the 1990s caused depressions in many Asian and non-Asian countries. Indonesia, Thailand, and South Korea were affected the most among many other Asian countries. Non-Asian countries such as Finland and Russia were hit hard as well. Russia’s GDP fell 40% and Finland’s GDP fell 11%.