downturn

Downturn is a period of reduced economic activity or slower growth. In macroeconomics, it is a phase of the business cycle that follows a peak and precedes a trough, during which indicators such as GDP growth, industrial production, and employment slow or decline. The term is broader than recession; a downturn may describe a temporary, milder slowdown or a localized contraction that does not meet formal criteria for a recession, which are defined differently in various countries.

Indicators of a downturn include shrinking gross domestic product, rising unemployment, weaker consumer spending and business investment, tighter credit conditions, and lower asset prices. The duration and severity vary and may affect one sector more than others, producing uneven results across regions and industries.

Causes can include demand weakness, financial stress, higher real interest rates, external shocks, or supply disruptions. Downturns can propagate through feedback effects, as reduced income lowers demand further and firms cut back on employment and investment.

Policy responses typically involve monetary policy easing, fiscal stimulus, automatic stabilizers like unemployment benefits, and targeted support to affected industries or households. Structural reforms or macroprudential measures may accompany shorter-term stabilization efforts.

Historical examples include episodic downturns within longer business cycles, such as the global financial crisis of 2007–2009 and the downturn associated with the COVID-19 pandemic. The term is commonly used across economics, finance, and journalism to describe periods of deteriorating conditions, distinguishing them from more severe or longer-lasting contractions such as recessions or depressions.