Recession (economics)

Definition

In economics usage, the term recession is conventionally defined (except in official pronouncements by the United States government) as two consecutive quarters of negative growth of gross domestic product. In the United States, the official designation of an economic situation as a recession is the responsibility of the National Bureau of Economic Research . The term "depression" is normally reserved reference to an exceptionally prolonged and severe recession.

The nature of recessions

The causation of recessions is a topic of continuing controversy among economists, and is at the heart of the study of macroeconomics, but there is general agreement concerning some of their common characteristics. By common consent a recession is generally triggered by an economic shock to which the market mechanisms, that normally keep supply in line with demand, are temporarily unable to adjust. The result is a deficiency of demand, meaning that suppliers are unable to sell their output - and that, in particular, many people find themselves unable to get employment. Typical of shocks that have triggered recessions have been , the bursting of speculative bubbles, sudden increases of commodity prices, and credit shortages resulting from financial crises.

Some major recessions

The twentieth century

The only major recession in the inter-war years was the global Great Depression that followed the American stock exchange crash of 1929 the triggering of which has variously been atributed to the bursting of a speculative stock exchange bubble and to a monetary shock administered by the United States Federal Reserve System. From its origin in the United States, it spread to other industrialised countries, resulting in massive unemployment and human suffering. It lasted in the United States from 1930 until the outbreak of the second world war in 1939.

The most important of the recessions that occurred in the post-war years of the twentieth century were the global recession of 1973, triggered by the sudden rise in the price of oil, and an Asian recession in the 1990s triggered by the bursting of a real-estate buble and the consequential development of the Asian banking crises.

The twentyfirst century

The developing global recession of 2008 is largely attributable to the banking and credit crash of 2008 which was triggered by the bursting of a speculative real-estate bubble in the United States, and the following subprime mortgage crisis.