Explained: What Is Recession Why Is May Come Back Soon

A considerable decrease in overall economic activity in a particular area is called recession. However, the National Bureau of Economic Research (NBER), which officially declares recessions, says the two consecutive quarters of decline in real GDP are not how it is defined anymore.

The NBER defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

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Recession is defined as "a considerable fall in economic activity that is spread across the economy and that lasts more than a few months" by this private non-profit research organisation. The study notes that although each of the three criteria¡ªdepth, dissemination, and duration¡ª¡°needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.¡±

Other ways of defining recession

Indicated by weak output and rising unemployment rates- A prolonged period of weak or negative real GDP (output) growth that is accompanied by a noticeably higher unemployment rate is known as a recession.

During a recession, a lot of other economic activity indices are similarly weak. For instance, corporate investment and consumer consumption are typically low. Additionally, both the number of enterprises that close and the number of families and businesses that are unable to repay debts are unusually high.

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Technical recession - The most common definition of recession used in the media is a ¡®technical recession¡¯ in which there have been two consecutive quarters of negative growth in real GDP. This definition often appears in textbooks and is widely used by journalists. There are, however, a number of shortcomings of this definition of recession:

GDP growth can be weak ¨C but not negative ¨C and still be associated with significant increases in the unemployment rate and hardship for households.

Some components of GDP are volatile. Consequently, two consecutive quarters of negative growth in GDP can give a false signal about the underlying pace of economic growth.

Measurement of the components of GDP is subject to revision as more data become available. Consequently, a negative quarterly growth figure can be revised away or a positive one can become negative, also increasing the possibility of a false signal about the underlying pace of economic growth.

One of the great recessions of our times is the Great Recession which lasted from December 2007 to June 2009. It saw a GDP decline of 4.3% and unemployment rate of 9.5%. The nationwide downturn in U.S. housing prices triggered a global financial crisis, a bear market in stocks saw huge decline, and was easily the worst economic downturn since the recession of 1937-38. Global investment flows into the U.S. had kept market rates low, likely encouraging unscrupulous mortgage underwriting and mortgage-backed securities marketing practices.Oil prices spiked to record highs by mid-2008 and then crashed, depressing the U.S. oil industry.

Recession and Depression

In terms of scope and duration, a depression can be compared to a much larger version of a recession. As a result, during a depression, there are extended periods of declining output and rising unemployment rates.

Some definitions of depression state that it is a severe recession that takes place in one or more economies because of the size and duration of a depression, which frequently results in adverse economic repercussions that are felt in many nations worldwide.

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The Great Depression is the most well-known economic depression, owing to its depth and duration in economies around the world. It pre-dated modern social security systems and its social consequences remain a defining example of the potential cost of economic policy failures.

The fundamental cause of the Great Depression in the United States was a decline in spending (sometimes referred to as aggregate demand), which led to a decline in production as manufacturers and merchandisers noticed an unintended rise in inventories.

The sources of the contraction in spending in the United States varied over the course of the Depression, but they accumulated in a monumental decline in aggregate demand. The American decline was transmitted to the rest of the world largely through the gold standard.

Recession and Covid 19

The rapid and severe impact of the coronavirus epidemic and the curtailment measures to contain it have severely depressed the world economy. Forecasts from the World Bank indicate that in the year the pandemic began, the global economy shrank by 5.2 percent.

The pandemic's impact is being felt most keenly in nations with a high reliance on international trade, tourism, commodity exports, and outside funding. All EMDEs (Emerging market and developing economies) have vulnerabilities that are exacerbated by external shocks, albeit the degree of disruption will differ from region to region. In addition, disruptions in access to primary healthcare and education are expected to have long-term effects on the growth of human capital.

Recession in India

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The COVID-19 pandemic has had a largely disruptive effect on India's economy. According to the Ministry of Statistics, India's growth decreased to 3.1% in the final quarter of the fiscal year 2020 due to this. A pre-pandemic slowdown had been occurring in India as well, and the World Bank claims that the current pandemic has "magnified pre-existing threats to India's economic outlook."

While chief economic advisor V Anantha Nageswaran does not foresee a recession in India this financial year, the global economy could indeed be caught in its throes or suffer a significant slowing down, depending on how long the Russia-Ukraine war lasts. If that happens, India cannot avoid the repercussions, though it might not enter into a recession again.

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