recessions

A recession is a significant decline in economic activity that lasts for a prolonged period, usually visible in reduced real GDP, income, employment, and industrial production. While no single criterion exists globally, many economists define recessions as periods of negative growth lasting several months. In the United States, the National Bureau of Economic Research dates recessions by a broad set of indicators, including GDP, employment, and sales, rather than relying on a fixed rule like two consecutive quarters of decline.

Causes are varied and often interlinked. Demand shocks, financial crises, tightening credit conditions, and external events can trigger downturns. The contraction spreads through consumer and business confidence, reducing spending and investment. Labor markets weaken as firms cut hours and lay off workers, which further lowers demand and can slow inflation or push prices lower.

Economists describe recessions as part of the business cycle, typically following a contraction, a trough, a recovery, and an expansion. The pace and shape vary: V-shaped rebounds, U-shaped slow recoveries, W-shaped double-dip episodes, or in some cases L-shaped stagnation. Severity is assessed by depth of output loss, duration, and breadth across sectors.

Policy responses aim to stabilize demand and financial conditions. Central banks may lower policy rates or provide liquidity, while governments use fiscal stimulus and automatic stabilizers to support households and businesses. Structural reforms and favorable global conditions can influence the speed of recovery. The interplay between policy, inflation, and global markets shapes the trajectory after a downturn.