Downturns

A downturn is a period of declining economic activity. In macroeconomic terms, it is a phase of the business cycle during which output, employment, and spending fall from recent highs. Downturns can vary in length and severity and are not defined by a single rule, though many observers associate them with a sustained decrease in real GDP.

Common indicators include contraction in real GDP, rising unemployment, decreased industrial production, softer consumer demand, and declines in investment and stock prices. Confidence measures and credit conditions often deteriorate during downturns.

Causes are diverse and interacting: demand shocks, financial market turmoil, credit tightness, policy tightening, external events such as wars or pandemics, and supply chain disruptions. Downturns can be triggered by one large shock or by the cumulative effect of several factors.

Related concepts: a downturn is part of the typical business cycle. If a downturn lasts longer and is widespread, analysts may declare a recession; shorter declines may be described as a slowdown or contraction. The trough marks the end of a downturn and the start of recovery.

Response: authorities may use monetary policy (lower interest rates, asset purchases), fiscal policy (spending, tax relief), and targeted support for households, firms, and credit markets. Structural reforms and diversification can enhance resilience for future downturns.