A recession is a prolonged decline in economic activity, marked by a downturn in consumer spending and investment and a high unemployment rate. Recessions usually occur when a country’s economy experiences sharp swings in demand or supply or financial market difficulties.
Recessions can have long-term consequences that affect the health, learning and achievement of qualifications and social mobility for households directly affected. They can also lead to a loss of jobs and output by businesses, and damage productive capacity when companies close down.
Economic downturns are not always clear-cut and can be difficult to identify, even when they are occurring. The definition of recession used by the National Bureau of Economic Research (NBER), a private US think-tank recognised for its work on business cycles, defines it as a period between a peak and a trough in a country’s economic cycle. A decline in real GDP, industrial production and retail sales for two consecutive quarters and a rising unemployment rate are considered indicators of recession.
The causes of recessions are complex and varied, and differ between countries. They can include a fall in household confidence which leads to lower consumption, and changes in the way that businesses use their resources, for example if they increase their savings and reduce investments as they anticipate poorer performance.
Recessions can also be triggered by a range of financial problems, such as a bubble in the housing sector, or a sharp increase in oil prices. Other reasons include a change in government policy designed to reduce inflation, such as tighter monetary or fiscal policies that can cause a contraction in the economy.
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