Effect on Businesses. Investing During a Recession. History of Recessions. Recession Terms A-F. Recession Terms G-Z. The Shapes of Recession Recovery. What is a Recession?
Key Takeaways A recession is a period of declining economic performance across an entire economy that lasts for several months. Businesses, investors, and government officials track various economic indicators that can help predict or confirm the onset of recessions, but they're officially declared by the NBER. A variety of economic theories have been developed to explain how and why recessions occur.
Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms Economic Recovery Definition An economic recovery is a business cycle stage following a recession that is characterized by a sustained period of improving business activity. Soft Patch Soft Patch refers to a period in which the economy has slowed down amidst a larger trend of economic growth.
The Conference Board CB The Conference Board CB is a not-for-profit research organization which distributes vital economic information to its peer-to-peer business members. Stagflation Definition Stagflation is the combination of slow economic growth along with high unemployment and high inflation. The global financial crisis — : International financial markets and banking systems experienced a period of extreme stress and volatility in see Explainer: The Global Financial Crisis.
The damage done to financial markets and the banking systems of many other countries triggered large-scale losses of economic activity and large increases in unemployment. For many countries, this was the most severe recession since The Great Depression. However, the Australian economy fared much better than most because it had a sound financial system, a relatively large exposure to the buoyant Chinese economy, and strong macroeconomic stimulus to cushion it from the global downturn.
Australian GDP only declined in one quarter, although the unemployment rate increased to close to 6 per cent and the underemployment rate rose sharply.
The COVID pandemic is still unfolding but has already caused large contractions in many economies, including Australia. Because management of the public health issue required the immediate suspension of many economic activities, the economic effects of the pandemic have been notable for the speed at which output fell and unemployment rates rose, as well as for the scale of these effects.
For instance, in Australia GDP fell by 7 per cent in June quarter , the largest quarterly decline for which records are available. Economic activity rebounded over the next 12 months as COVID case numbers declined and restrictions were lifted, with spending supported by historically large monetary and fiscal stimulus.
However, with further large outbreaks in the second half of and renewed activity restrictions, near-term economic prospects depend on the success of measures such as the vaccination program in suppressing COVID The social and economic costs of recessions can be large and persistent. The central bank and other economic policymakers seek to ensure the economy continues to grow at a sustainable rate to avoid any unnecessary slowdown in economic activity.
If a negative shock does occur that causes activity to slow, policymakers will attempt to stimulate the economy to try to avoid a recession and minimise the economic costs faced by households and businesses. There can be long-term consequences from an increase in unemployment and business failures that occur during recessions. Some people who become unemployed in recessions face long-term unemployment, even when normal rates of economic growth resume. Long-term unemployment can also occur because a recession can speed up structural changes to the way the economy works.
Reflecting these developments, the unemployment rate after each recession tends to be higher than before the economy entered a recession and takes a long time to decline. The rise in unemployment that occurs during a recession results in increased economic hardship that is borne unequally across society with different groups being affected in different recessions. The business failures that occur during a recession result in a permanent loss of output by these businesses and a destruction of productive capacity.
This is especially costly when businesses had been innovative, had specialist knowledge, or formed a key part of a supply chain or network. A recession can also have a longer-term impact on a nation's public debt as governments experience a reduction in taxation revenue but need to fund increased expenditure and transfer payments through their efforts to stimulate the economy, provide social welfare and support businesses.
The cause of the recession, its duration and whether it accelerates structural change has bearing on which groups are most affected by a recession. The National Bureau of Economic Research. Accessed Oct. The New York Times. The Brookings Institution. Wharton School of the University of Pennsylvania. Congressional Service Reports. National Bureau of Economic Research.
Federal Reserve. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.
These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Understanding Recessions.
Effect on the Economy. Effect on Businesses. Investing During a Recession. History of Recessions. Recession Terms A-F. Recession Terms G-Z. The Shapes of Recession Recovery. The gray bars represent recessions identified by the NBER. The two most severe contractions in output excluding the post-World War II adjustment from to occurred during the Great Depression of the s.
The differences are telling:. During the major contraction phase of the Depression, between and , real output in the United States fell nearly 30 percent. During the same period, according to retrospective studies, the unemployment rate rose from about 3 percent to nearly 25 percent, and many of those lucky enough to have a job were able to work only part-time. For comparison, between and , in what was perhaps the most severe U. Other features of the decline included a sharp deflation—prices fell at a rate of nearly 10 percent per year during the early s—as well as a plummeting stock market, widespread bank failures, and a rash of defaults and bankruptcies by businesses and households.
The economy improved after Franklin D. Roosevelt's inauguration in March , but unemployment remained in the double digits for the rest of the decade, full recovery arriving only with the advent of World War II. Moreover, as I will discuss later, the Depression was international in scope, affecting most countries around the world not only the United States.
While you can see from the above discussion that recessions and depressions are serious business, some economists have been known to suggest that there is another more casual way to explain the difference between a recession and a depression recall that I began this answer with a promise of a joke :. Ask Dr. May
0コメント