What is a recession?

Economic shocks

Recession can be precipitated by economic shocks, such as financial crises, stock market collapses, or sharp drops in company investment. These shocks are all dominant events that impair economic stability and confidence, causing economic activity to decrease.

Reduced consumer spending

When customers are concerned about their finances or confront uncertainty, they tend to reduce their spending. Consumer spending may be reduced because of factors such as excessive levels of personal debt, diminishing property values, or increased unemployment anxieties.

Business-cycle disruptions

Economic expansion and contraction are natural business-cycle phases. Following extended contraction, firms may become less hopeful about the future, resulting in lower investments and a drop in economic activity.

Fiscal and monetary policies

Government activities can also influence the onset and severity of recession and inflation. Monetary policies, such as central-bank interest-rate adjustments, can have an impact on borrowing costs for firms and consumers. Furthermore, fiscal policies, such as changes in government spending and taxation, can have an impact on total economic activity.

Great Recession (2007–2009)

The subprime mortgage crisis in the United States prompted the most recent and significant worldwide recession, known as the Great Recession. The bursting of the housing bubble resulted in a recession in the stock market and a financial-sector collapse, creating a significant slowdown in global economic activity.

Dot-com bubble (2000–2002)

The collapse of the dot-com bubble, which saw a quick rise and subsequent crash in the stock prices of internet-based companies, drove the recession and inflation. The fall in the technology industry resulted in employment losses, lower corporate investments, and a slowing of economic growth.

Asian Financial Crisis (1997–1998)

This recession began in Thailand, Indonesia, and South Korea, among other Asian countries. It was caused primarily by excessive speculation, huge amounts of foreign debt, and a lack of transparency in financial systems. The crisis caused a severe economic decline throughout the region.

Government intervention

Governments are critical in minimising the consequences of a recession. They can enact expansionary fiscal policies by raising government expenditure, granting tax breaks to encourage investment, and providing financial aid to struggling industries. Monetary measures such as interest-rate cuts and bank liquidity injections can boost borrowing and spending.

Infrastructure investments

Investment in government infrastructure projects cooperating with the business sector can increase economic activity and create jobs. Such investments not only create immediate employment opportunities but also help to drive long-term economic growth.

International cooperation

Because a recession can have global ramifications, international collaboration is essential in minimising its impacts. Coordination among countries, central banks and international organisations can aid in stabilising financial markets, preventing currency crises and promoting economic recovery.

Diversification and risk management

Businesses and individuals can lessen the impact of the recession by diversifying their investments and income streams. Diversification decreases reliance on a particular industry or market, making it easier to weather an economic downturn.

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Articles referenced

^{GHD n.d., ‘GHD Advisory’, retrieved June 20, 2023, from https://www.ghd.com/en/expertise/advisory.aspx}

^{Investopedia 2023, ‘Recession: Definition, causes, examples and FAQs’, retrieved June 20, 2023, from https://www.investopedia.com/terms/r/recession.asp}

^{Rodeck, David 2022, ‘What is a recession?’ retrieved June 20, 2023, from https://www.forbes.com/advisor/investing/what-is-a-recession/}