Recession

Recession is the overall slowdown in the economic activity of a country/geographic area extending over a sustained period. While some experts define recession as an economic slowdown that lasts for more than three months, others take the timeframe as six months. A ‘Technical Recession’ is normally defined as two consecutive quarters of declining GDP or negative GDP growth. All the measures of production, such as Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes and business profits fall during this phase.

Recession is the overall slowdown in the economic activity of a country/geographic area extending over a sustained period. While some experts define recession as an economic slowdown that lasts for more than three months, others take the timeframe as six months. A ‘Technical Recession’ is normally defined as two consecutive quarters of declining GDP or negative GDP growth. All the measures of production, such as Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes and business profits fall during this phase. Governments respond to recessions by employing expansionary policies, such as increasing the supply of money and government spending and reducing taxation.

Measuring Global Recession

The International Monetary Fund (IMF) defines global recession as when global economic growth is 3% or less. The following indicators help in predicting a recession:

 

• A plummeting of the stock market
• An inverted yield curve
• A rise in the initial claims for unemployment insurance
• A decline in the demand for consumer goods
• A decline in the inflation-adjusted money supply

History of Recession

Recessions have been common throughout modern economic history. The United States faced its first recession (the “panic of 1797”) when the Bank of England reached its soil. Most of the twentieth century recessions were caused by wars or a rise in oil prices.

• 1918-1921: After the end of the WW-I, production of arms and ammunition declined. Unemployment increased as troops returned from war. The inflation rate surged.
• 1945: A decline in spending by the US government after WW-II led to a fall in the country’s GDP.
• 1953: The Korean War was followed by a period of high inflation. The Fed took monetary measures for controlling the situation.
• 1957: The tightened monetary policy followed by the US since 1955 was eased by the end of 1957. This shift in policy resulted in a budget deficit of 0.6% of the GDP in 1958 and then to 2.6% of the GDP in 1959.
• 1973-74: The OPEC increased oil prices. On the other hand, high spending by the US government during the Vietnam War led to economic stagnation and inflation.

• Early 1980s: The 1979 energy crisis after the Iranian Revolution led to a rise in oil prices and a cut in its supply.
• 2001: The bursting of the dot-com bubble, 9/11 attacks and various accounting scandals contributed to a dip in the North American economy.
• 2007-2009: The collapse of the housing market led to the bankruptcy of financial institutions. Credit crunch followed. Stock markets crashed.

The global recession of 2008 was a major downturn in the economic history of the world. Governments across the globe implemented new policies to tackle its aftermath.