Recession in the economy. In simple words, a recession in the economy - what is it? If the economy is in recession

The economic situation in a country cannot always be stable, so economists often have to answer the question: what is a recession in simple words? Despite the complex name, as is the case with other economic terms, the essence of the concept lies in the Latin name itself, and recession is nothing more than a “retreat” or “slowdown”. In fact, this means a moderate, but not yet critical, decline in production following the boom in its growth. We can say that this is the first alarm bell for the country’s economy or the early stage of a “disease” that must be treated immediately to avoid complications.

What is a recession and its signs

No economy can prosper all the time, and sharp growth is always accompanied by decline. As a rule, there is a decrease in the quantity of products produced, and their consumption also decreases, while the level of GDP does not increase, but is at the “zero” level and even decreases. This is the first sign of a recession and a call for action, since the next stage is a crisis. By the way, a recession is a normal state of the economy, which periodically goes through four alternating phases, which takes from 10 to 20 years.

We invite you to familiarize yourself with its main features:

decrease in production volumes and job cuts as a consequence (unemployment);
rising prices for food and other consumer goods;
falling stock indices and rising inflation;
increase in the number of remittances to other countries;
a decrease in the number of loans issued, while their size also decreases;
State debt is growing.

We can say that we are dealing with a recession if the inflation level reaches a not yet critical level of 3-4%. If at the same time the presence of other signs is noted, we can speak with a high degree of confidence about an approaching crisis.

Recession can be of three types: unplanned (arising as a result of war or other unpredictable events), caused by external debt or growing investor mistrust. The main danger is represented by the first two types, since it is not possible to minimize the consequences due to a basic lack of time.

Reasons for the recession in Russia

Among the reasons for the occurrence of a recession, the main one is often the inability of the leadership to manage the country, while global economic trends play a significant role in this.

The Russian Federation has experienced this very “slowdown” more than once and, as it turns out, there are enough reasons for this:

First of all, this is a great dependence on the situation on the hydrogen market, the sale of which determines the budget capacity and the level of GDP, respectively.
Thus, the 2010 recession in Russia is directly related to the fall in world oil prices, despite the fact that there was practically no growth in production in non-commodity segments.
A decrease in production, and this leads to a decrease in demand in the domestic market and a decrease in the number of export transactions.
An increase in inflation, a decrease in investment attractiveness and capital outflow, as a consequence.
Devaluation, or depreciation of the national currency in relation to the currencies of other countries, or a decrease in the gold content of the country's monetary unit (ruble).

Despite the fact that a recession is not yet a critical change in the country’s economy, measures not taken in a timely manner can lead to impoverishment of the population, which means that people will begin to save. The consequence of this will be a decrease in consumer demand, a reduction in production rates, or a surplus of unclaimed goods. A decrease in production leads to a decrease in wages, an increase in unemployment and an outflow of qualified personnel from the country. All countries periodically face recession, but while for some it is painful, others experience serious deterioration.

What is happening in modern Russia

According to many economists, Russia has been in a dangerous situation for some time, because the recession, which began in 2014, progressed, and already in 2015 there was an acceleration of the process. The reason for this was a sharp drop in oil prices, which led to a significant devaluation of the ruble and a decrease in the solvency of the population. To be fair, something similar has happened in other advanced economies.
Since 2017, when oil prices began to rise, the situation on the Russian market began to improve, and this led to an increase in production, the opening of new enterprises and an increase in living standards. The rise in hydrogen prices continues against the backdrop of a reduction in the amount of hydrogen production and a decrease in the level of commercial oil reserves. By the way, for some, a recession means a decrease in income and impoverishment, while other enterprising people manage to make good money from this.

How to protect your own assets from a recession

Why the recession in Russia is dangerous and what investors need to know

The oil situation did not have the best effect on the ruble in June-July. Although the country's leadership is trying in every possible way to diversify budget revenues, oil and gas revenues continue to play almost the decisive role. And oil fell from 55 to 48 dollars. The US immediately led to a weakening of the ruble. Although not as strong as before, a return to the level of 60 rubles still indicates a local weakening of the economy. The situation is similar with, which has been showing negative dynamics since the beginning of 2017. And although, thank God, there is no need to talk about a global recession, why not think about the causes and consequences of crises in advance. Some economists, for example, believe that, in accordance with the wave theory, a new crisis and a new recession await us ahead. Let's discuss.

Signs of a recession and possible consequences;
How to reduce the impact of a recession for a private investor.

What is a recession: concept, signs, consequences

I've been running this blog for over 6 years. All this time, I regularly publish reports on the results of my investments. Now the public investment portfolio is more than 1,000,000 rubles.

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The recession is based on the wave theory of economic development. The cyclical nature of waves, according to experts in economic theory, is inevitable. Following any economic growth, at some point there is a market oversaturation, a peak, after which economic growth gives way to recession. After reaching the bottom, recession gives way to growth. The wavelength varies from 2-3 to 40-60 years (Kondratieff waves).

Signs of a recession:

compared to previous periods. A slowdown in GDP growth indicates that the economic cycle is approaching its peak. In some cases, the decline in GDP may be seasonal, so the GDP and GNP indicators are analyzed together at the end of the year. Although negative dynamics are considered the main sign of a recession, the signal is lagging;
(). Normal inflation in developing countries is 3-5% and 1-2% in developed countries; a significant deviation from the norm indicates problems. The second extreme is deflation, which indicates a lack of demand, and therefore production. A striking example is Japan, where, due to a crisis of overproduction and market saturation, consumer demand has sharply declined;
reduction in production and consumption;
rising unemployment, which is a consequence of the decline in demand and production;
decrease in real incomes of the population (decrease in purchasing power).

Signs of a recession are difficult to see right away. They come gradually. But if more than half of the above signs have already occurred to one degree or another, private investors should take action.

Causes of recession

reduction in prices for raw materials. A striking example is . For many years now, the world has been experiencing overproduction of oil, but OPEC countries cannot agree on an actual reduction in production volumes. Competition and low costs lead to dumping, and Russia, whose oil and gas industry accounts for more than 40% of budget revenues, reacts sharply to low oil prices by sinking the ruble and reducing GDP;
problems of the banking sector. Banks are considered the engine of the economy. They attract non-performing money in the form of deposits and redistribute it among those who lack free capital by issuing loans, investing in securities, etc. Once problems in the banking sector reach critical mass, an explosion occurs. An example is , which marked the beginning of a recession in the global economy;
emergence of new technologies. During the transition period of the introduction of new technologies, a recession is observed due to the fact that someone loses their job, demand falls when enterprises are re-equipped, etc. that new technologies will not justify themselves. An example is the recession in the USA after the “dot-com crash”;
force majeure - change of government, military action, etc. Although sometimes this can lead to economic growth. An example is the growth of the US stock market.

As a result of the recession, there is a technological rollback to previous levels. Due to a decrease in demand, investments in scientific and technical developments decrease, financial resources become more expensive, which reduces lending to zero, unemployment increases, the capitalization of companies decreases (stock market recession), and the national currency devaluates.

Ways to combat recession by the state:

money-credit policy. Money is the Central Bank’s basic asset in the fight against recession. Inflation is stopped by withdrawing the money supply (including by increasing taxes) or by redistributing it. Redistribution may mean a reduction in the discount rate to stimulate lending, subsidies for individual industries, etc. The ways to combat deflation are similar: the introduction of negative discount rates (so that money does not accumulate in accounts, but circulates in the economy), government orders, etc. In Japan, they were going to resort to “helicopter money” (the idea of Milton Friedman, a Nobel laureate) to fight deflation, but it hasn’t come to that yet;
balancing the balance of payments. During a recession, exports fall, and the excess of imports over exports further damages the economy, depreciating the national currency. Customs duties and incentives for export-oriented companies are only part of the options for curbing the economic downturn;
control over money circulation. During a recession, there is a massive outflow of capital outside the country. The state’s task is to prevent this, including through administrative methods.

Over the past 6 months, Russia has seen a severe correction in the stock market, and the ruble is gradually depreciating. But on the other hand, in comparison with 2014-2015, there has been clear progress in the country’s economy. The Central Bank managed to reduce inflation, bringing it closer to the target level, foreign investors are gradually returning to the country, while GDP does not yet show positive dynamics, but does not show negative ones either. Economists believe that the recession of past years in Russia is over and the economy is gradually returning to growth. And the stock market correction is only temporary.

What should a private investor do during a recession?

Firstly, don’t panic, and secondly. The biggest mistake is to sell existing assets in the wake of panic, thereby aggravating the situation. In most cases, speculators get rid of assets during a recession. Long-term investors understand that the situation is temporary and prefer to wait.

Tips for investors:

diversify. In a recession, always add precious metals to your portfolio and they may well cover the potential loss in the event of an economic downturn. When working with stock indices, invest in different sectors. During a recession, decline is observed in almost all industries, but it is not uniform;
follow the fundamental news and macroeconomic indicators of the country in which you invest: GDP, unemployment rate, inflation, external and internal debt, budget deficit. Their dynamics in one direction or another will show the vector of economic development;
Be very careful when investing at peak values of asset quotes - a quick reversal is possible. It is best to invest at the bottom at the moment of reversal, having previously assessed;
divide your investment portfolio into 2 parts: short-term and long-term. Be patient and do not sell assets during a recession;
the investment portfolio should consist of conservative and aggressive assets. During a recession, conservative assets fall in price slowly (bonds, gold, etc.). It is better to sell aggressive assets at the time of reversal at the peak and buy at the bottom.

The most dangerous thing about a recession is a vicious circle: inflation leads to a fall in demand, and due to the fall in demand, unemployment rises, which further aggravates the demand situation. The role of the state is to monitor macroeconomic indicators and prevent the recession from snowballing. Any downturn in the economy of both a single country and the world is inevitable, but the rollback should not be greater than the previous one. In other words, the bottom of each cycle should be higher than the bottom of the previous one, and the peak correspondingly higher. Recession as a correction is a logical phenomenon that contributes to further economic development. And the task of a lazy investor is to see a change in trend in time and diversify risks (or even change the investment strategy). ,

I suggest discussing investment strategies in the face of impending crises in the comments? What assets should comrades go into?

Profit to everyone!

A recession is a depressed state of the economy, a phase of decline and inhibition of all constructive activity. A characteristic feature of a recession is an increase in the unemployment rate, the gross national product (GNP) tends to zero as production declines.

What is a recession in the economy

What does the word "recession" mean? Translated from English, recession means “fall, decline.” The word comes from the Latin recessus, which means retreat. Speaking in terms of economic cycles, then An economic recession is a moment of decline after a boom, followed by a bottom phase, followed by a rise, after which a peak or boom occurs again.

A variant of a deep recession is called depression. However, these days the term is completely unpopular. More often they talk about a recession. The most famous great recession or Great Depression occurred in the United States in 1929. Since then, as economist M. Rothbard notes, the US government was so afraid of something like this happening again that it literally banned the term “depression” and introduced the more common “recession.” But over time, recessions began to occur more and more, so instead of them, the concepts of recession, deviation, and slowdown in production were introduced.

In the global economy, not a single downturn goes unnoticed by other market players. Since in macroeconomics all countries are ultimately “tied together” by a single market for sales and consumption. The largest global recession in recent memory occurred in 2008-2010. Starting with the collapse of the real estate market in the United States, the economy of the largest power on the continent of North America pulled the whole world with it. This decline led to a reallocation of resources in markets. People in all countries lost money, the savings of many sank into oblivion.

Causes of recession in the economy

By definition, the economy develops in cycles. The cycle of contraction (recession, recession) is followed by a cycle of expansion (rise). Due to its cyclical nature, it cannot be said that a recession is an unpredictable or unusual phenomenon. On the contrary, almost any recession can be predicted.

In modern economic theory, there are four types of economic cycles of different stage durations (rise, peak, recession, depression) - from 2-3 to 50-60 years. In general, it cannot be said that cycles are so clearly measured; in life, one stage can last longer or shorter, depending on current world events.

The more-mentioned cyclicality can be traced in the model of the 19th century French physician and economist C. Juglar. The duration of each phase, including the recession phase, is from 6 to 12 years.

A typical recession is a decline in business activity for three months or more. Since a recession follows an economic peak, the reasons can be considered the emergence of new technologies, increased harvests, and changes in prices for raw materials. A recession can also be triggered by force majeure in the form of a war, natural disaster or revolution.

The recession is growing like an avalanche: anticipating a possible recession, consumers begin to buy more or, conversely, save, firms begin to produce more or reduce production rates, in a word, massive fluctuations in business activity occur. The market is trying to find a new equilibrium point, as a result this leads to a decline in production and a decrease in investment activity.

Types of recession in the economy

There are three types of recession depending on the causes.

Political recession. It is based on psychological reasons. As a rule, it is associated with an increase in investor uncertainty and entrepreneurial doubts. Consumer confidence is declining.
Debt recession. Associated with an increase in the country's external debt. Characterized by falling stock prices and outflow of funds. May last for many years.
Force majeure recession. Occurs due to powerful factors such as war or a sharp decline in oil prices.

Each type of recession is surmountable and will pass in any case, the question is how long this economic phase will last.

The first type is easily eliminated by increasing citizen confidence, for example, by lowering interest rates. The second type may take years to emerge and move from the depression phase to growth. It is associated with the restructuring of the economy of a country or an entire region and finding a new equilibrium point.
The third type of recession, on the one hand, is the most unpleasant due to the suddenness of its occurrence, on the other hand, measures must be selected depending on the factors that provoked the economic recession.

Signs of recession in the economy

How to understand that an economic recession has already begun? A number of characteristics that indicate the beginning of a recession followed by stagnation:

increasing the level of inflation in the country;
rising unemployment;
fall of stock indices;
reduction in production rates;
outflow of capital abroad.

According to another classic definition, the signs of a recession are:

the fact that the phase follows the boom;
decrease in business activity;
decline in production.

The above economic indicators are clear to specialists, but how can ordinary citizens see the impending recession? Due to the fact that prices for well-known goods have crept up, purchasing power, i.e. how many goods can be bought for the same money as before has fallen. Inflation has increased (you can learn about this from the news), unemployment is growing.

The recession period can last from three to ten years. Its duration can be roughly judged by the boom cycle before it. The end of a recession means the economy has reached bottom, i.e. as deep as possible in the minus relative to typical economic indicators.

The end of a recession, although it leads to a lower point - a trough or depression - means the beginning of economic growth afterwards. The economy will be rebuilt and a new wave of prosperity and prosperity will begin.

Consequences

From the point of view of economic theory, a recession in itself is not harmful or malicious. There is no need to be afraid that it will happen. It is precisely the opposite expectation that growth will continue continuously that is erroneous and leads to the collapse of hopes.

Growth gives way to boom, but they cannot last forever, some economic instruments become imperfect, new technologies and production appear. And this is good. A recession is, in some way, a “cleansing” of the economic body of a country or a number of states. It helps the economy rejuvenate and enter a new stage of development.

For ordinary citizens, the consequences of a recession are:

job losses;
decrease in purchasing power;
depreciation of money;
reduction in the variety of goods due to a decline in production.

In short, it's time to tighten our belts. However, if you look at this period as a time of getting rid of unnecessary things and adjusting to a more suitable wave of economic growth - undergo additional training in order to then find a new, higher-paying job, expand career opportunities, review and reduce family expenses, start buying only what you need. What is really needed is that, having emerged from depression, you will not be in the position of a victim beaten by economic squabbles, but will begin to reap the fruits of the success laid down during the recession.

The cyclical nature of economic development consists of going through stages of boom, bust, stagnation, growth and decline in activity. The main stage is recession or recession as the beginning and end of economic cycles. The recession stage covers the entire economy or its individual industry. The stages of a recession are characterized by varying lengths of periods, scope and the reasons that caused the economic downturn.

Signs of an Economic Recession

The term “recession” – what is it in simple words? This is a decline in activity. It is determined by a combination of indicators, each of which confirms a decrease in business activity.

Signs of an economic downturn or recession include:

reduction in product consumption, which causes a decrease in production output;
job losses and rising unemployment;
activation of inflationary processes;
outflow of labor and capital abroad;
deterioration of living standards of the population;
decrease in gross product indicators;
decline in stock exchange activity and falling indices.

When a recession occurs, production slows down, affecting other areas of the economy. Signs are characterized by a gradual decrease in indicators and the duration of the period of slowing down processes. The onset of a new economic cycle depends on the magnitude of cash flow, an increase in which has a beneficial effect on the gross domestic product, and a decrease in which leads to a recession.

It is possible to describe what a recession in the economy is in simple words, based on the understanding of the process by ordinary citizens. The population recognizes the onset of a recession by a number of reliable indicators - a decrease in retail sales, a growing unemployment rate, inflation and changes in interest rates on securities and government bonds.

Recession classification

The intensity of the recession period is accessible to understanding when drawing up a graph of changes in the GDP indicator. The most common graphs of fluctuations in gross domestic product are of 3 types:

V-shape, which is characterized by a sudden decline in GDP and a sharp recovery in indicators. The decline has pronounced indicators of a drop in level that does not lead to a crisis.
U-trajectories, characterized by a long period of presence of a low level of GDP in a stable state. At the end of the period of decline, intensive growth begins.
L-type, characterized by a rapid decline in performance with a long recovery period without the onset of the recovery stage.

For the formation of indicators, a six-month or longer period is used. A delay in the publication of GDP changes leads to the conclusion that indicators will decline after the onset of an economic downturn or during the transition to the next stage of development.

Reasons for the recession stage in the economy

A decrease in reproduction can be caused by several reasons of internal or external origin. Known reasons for the decline in indicators include:

Decrease in world prices for natural resources - oil, gas and others. The reason is typical for the slowdown in the indicators of the resource-based economy. The recession is difficult to predict and depends on global markets.
Decrease in the level of income of the population. A decrease in wages due to inflation processes leads to a decrease in consumer demand for products, goods, works, services and, as a consequence, their production.
Changing the amount of excise taxes on the import of goods. With a decrease in taxation on imports, production on the domestic market decreases.
Declining favorable conditions for investment. With the outflow of capital abroad, investments in the national economy decrease.

Less common and easily predictable causes of decline are changes in business processes, the financial and credit sector, the tax system and the introduction of innovative technologies.

Adjustment and elimination of the reasons that caused the decline

A number of reasons are subject to accessible regulation and government management. Control of key points allows you to curb the rate of decline and its impact on enterprises and the population. The following conditions depend on the influence of government regulation:

reduction of inflation processes;
growth of the minimum wage, benefits and income of the population as a whole;
creating jobs and reducing unemployment;
material support for socially disadvantaged groups;
protecting the industrial sector by reducing the tax burden and securing government orders;
creating a favorable investment climate and creating state programs to attract investment;
stabilization of exchange rates in relation to the national monetary unit.

Process management prevents the onset of a crisis, which means that the recession has reached the bottom and the most negative stage of the economy. The difficulty of eliminating causes arises when they are unpredictable, among which the most dangerous for the economy are military actions and falling prices for natural resources. Unpredictable causes are characterized by the difficulty of predicting the onset, minimizing the consequences and the duration of the decline period.

Interactions with other stages of economic development

Taking proactive measures can offset the short-term decline in economic indicators. Otherwise, the economy may move to the next stage. A slowdown in the pace of economic indicators usually occurs after a recovery and precedes other stages - effective growth, crisis or stagnant processes of stagnation.

You can explain what recession and stagnation are in simple language using the main economic indicator - level of gross domestic product.

A recession is characterized by a slow decline in the indicator.
When GDP stagnates, there is little or no growth.

If a stage of stagnation occurs, the growth of the gross product may not exceed a few percent for several years.

For economic processes, the presence of a recession stage is more favorable than stagnation. During a recession, economic processes change and new models of overcoming are searched for. The stage of stagnation is a sign of a hopeless business scheme. Stagnation must be distinguished from a crisis - a stage characterized by a sharp reduction in the level of GDP.

Consequences of the decline in economic indicators

The recession stage causes economic processes, the slowdown of which is expressed in the following signs:

Reducing investment costs. During the recession stage, no new capital investments are made.
Reduced long-term lending, increased rates.
Fluctuations and collapse of the financial market.
Falling living standards, consumer demand and rising price levels.
Reduction by enterprises of production capacity and output volumes.

The results of the economic slowdown are observed throughout the country and affect the solvency and standard of living of citizens. The interconnection of the economy leads to a reflection of the decline in one country on the transformation of economic processes in other countries.

Greetings, dear readers! I try to visit my grandmother at least once a month.

She still retains clarity of mind and an insatiable interest in events both local and global. Sometimes we can discuss various news with her for hours.

For example, last week we discussed with her the emerging negative trends in the country’s economic development. I want to raise this topic with you, friends. Now I’ll tell you about recessions in the economy - what they are and what consequences ordinary citizens can feel.

A recession is a negative trend in macroeconomics (the national economy), often preceding a crisis. This phenomenon is cyclical in nature and is inevitable for any economic system.

Recession (Latin recessus - retreat) is a concept in macroeconomics that denotes a drop in production rates over a long period (from six months or more).

Warning!

The process is characterized by zero or negative dynamics of GDP (gross domestic product). A recession entails a decrease in business activity and a slowdown in economic development. A reduction in GDP refers to a decrease in the production of goods and a decrease in consumption.

A recession inevitably follows a boom (production boom), which is explained by the cyclical nature of any economic system.

In general, the economic cycle consists of four phases - growth (rise), stagnation (stabilization, absence of any dynamics), recession (fall) and crisis (depression).

The duration of the economic cycle in the modern global world is 10–15 years, which can be tracked by the global financial crises – the 70s, 90s and the last global crisis of 2008–2009.

Causes

There are several main causes of recession, depending on the level of economic development.

For resource-based economies, the decline is driven by lower prices for oil, gas and other exported minerals. The price of raw materials falls, the budget receives less revenue, and a deficit appears that needs to be compensated somehow.

To compensate, tax rates are increased and spending on social needs (education, medicine, etc.) is reduced. Such actions further intensify the decline in production.

In developed (industrial and post-industrial) countries, recession manifests itself as a result of a change in the technological structure, for example, due to the emergence and development of information technology.

The technological structure is understood as the level of development of technology and technology, the main directions of development of scientific and technological progress.

Attention!

It is impossible to influence the indicated reasons for the occurrence of a recession; they arise due to the objective laws of economics, so a recession at the level of an individual national economy will happen sooner or later.

A recession in one country can lead to a recession in other economies, leading to a global crisis.

There are reasons that arise under the influence of market participants. The economic downturn may be caused by problems in the banking sector.

For example, commercial banks have issued too many loans that are not repaid. Then financial organizations are forced to raise rates and raise funds in the foreign and domestic markets.

In a situation when there are too many such banks, the number of loans issued falls, enterprises therefore cannot borrow money and, in the absence of funds, stabilize or curtail production.

Because of this, unemployment is growing, people and companies are not paying off loans, banks are tightening rules, and the situation is entering a vicious circle and getting worse.

Force majeure circumstances, for example, war or a sharp change in energy prices, can plunge the economy into a recession phase. A way out of stagnation is only possible with the participation of the state, which will “pour” money into the economy, supporting various industries and stabilizing the exchange rate of the national currency.

Consequences

The main consequences of a recession in the economy include the following:

drop in production volumes;
collapse of financial markets;
reduction in the volume of loans issued;
increase in interest rates on loans;
rising unemployment;
decline in real incomes of the population;
decline in GDP rates.

The most powerful and critical consequence of a recession is the economic crisis. Due to the decline in production, the need for jobs and the number of workers decreases. This entails a wave of layoffs and rising unemployment. People begin to consume less, which leads to a decrease in demand for products and an increasing decline in production.

The debt of citizens and organizations to banks is increasing, which, in turn, are tightening the procedure for issuing loans.

Advice!

The volume of lending to individuals and legal entities is decreasing, the volume of investment in industry and science is decreasing, and scientific and technological development is slowing down. The decline in production is followed by a collapse of the securities market - shares of large industrial enterprises sharply lose value.

These events are followed by depreciation of money - inflation, further rise in prices and a decrease in real incomes of the population. Which ultimately leads to dissatisfaction and a decrease in quality of life.

The state is trying to find funds and is increasing its external debt. In the absence of sufficient finance, you have to refinance current loans and take out new ones.

All of these consequences are reflected in one indicator - a decrease in GDP (gross domestic product), which directly depends on the volume of production within the country.

source: http://delatdelo.com/spravochnik/terminy/chto-takoe-recessiya-v-ekonomike.html

An economic crisis never happens unexpectedly. It is anticipated by a recession. Any economic system, even a progressive one, sooner or later enters a recession stage. A recession is undesirable, but inevitable.

A recession is a long-term, initially not very pronounced decline in production and business activity, which worsens over time and turns into a crisis.

The recession period is characterized by such phenomena as:

negative GDP dynamics (both the quantity of products produced and the demand for them decrease);
low business activity;
lack of progress in the economy.

A recession is the stage following the stage of rapid economic development. Since all economic systems are cyclical, recession can be considered a natural process.

Warning!

It is known that there are four phases in every economic cycle. Rise and prosperity are inevitably followed by stagnation - a stage of stabilization and stagnation. Stagnation is replaced by recession. The “life cycle” of the system ends with an economic crisis.

It is futile to try to predict when a recession will begin. However, the government can prepare the country for it, take a kind of “depreciation” measures that will partially neutralize the negative phenomena accompanying the recession. A crisis will come only if the state's economic policy turns out to be ineffective.

Causes

An economic downturn does not happen suddenly. It is the result of many events and processes.

The cause of a recession can be global and unexpected changes in the market, which, in turn, are provoked by political changes. Roughly speaking, armed conflicts or jumps in gas/oil prices on the world market may be to blame for a slowdown in production and a decrease in demand for any product.

Unfortunately, the Russian economy is clearly dependent on the cost of oil. As soon as the market price of oil decreases, the budget begins to experience underfunding, which ultimately affects the volume of gross domestic product.

Experts believe that a recession that develops according to this scenario poses the greatest danger to the state, since it cannot be predicted and neutralized in time.

The second possible cause of recession is a total decrease in production volumes. A serious decline in production was recorded in 2008. It amounted to more than 10%.

The lack of “extra” money among citizens and a decrease in their purchasing power also lead to a recession. True, it is believed that a recession caused by these reasons is completely surmountable and does not have such dire consequences as a recession provoked by wars or market turmoil.

Attention!

Another factor causing a recession is capital outflow and lack of investment. Replenishment of the state's fixed capital occurs at the expense of private enterprises.

If the government is interested in these injections, it must provide business with conditions under which it can develop normally within the framework of the national economic system.

Consequences of recession in the economy

Now let's list the consequences of the recession:

financial markets collapse;
production rates are slowing down;
banks limit the issuance of loans;
interest rates on loans are rising;
the number of unemployed is also growing;
household incomes are declining;
GDP volume decreases.

All these phenomena together lead to an economic crisis.

The result of the decline in production is a decrease in the need for labor. Industrialists fire people, and they can no longer find a new job. A decrease in income leads to a reduction in needs. As a result, the demand for goods that can be dispensed with decreases. Production does not experience any incentives for development.

Individuals and legal entities become debtors of banks. Circumstances force banks to limit the issuance of loans. Investment in research projects and industrial enterprises is reduced, and the country begins to lag behind in terms of science and technology. Stagnation in the production sector affects the value of shares issued by industrial enterprises. They lose value.

The next stage of the crisis is characterized by rising inflation and the beginning of the devaluation of the national currency. Prices continue to rise and incomes continue to fall. The standard of living of the population is also falling, which leads to mass discontent.

The government is turning to more prosperous countries for financial assistance. The state's external debts are growing. To pay off one loan, you have to take out several others.

All these negative phenomena directly affect the volume of GDP. Its decline indicates a deterioration in the economic situation in the country.

It is noteworthy that there is no consensus among economists about the nature of the recession. Some believe that this phenomenon in itself is not critical, while others believe that recession, collapse and depression are synonymous.

source: http://www.temabiz.com/terminy/chto-takoe-recessija.html

Economic recession

What is an economic recession or just a recession? A recession (from the Latin Recessus - retreat) is a decline in production, which is characterized by zero or negative growth of the main macroeconomic indicator - gross domestic product (GDP), lasting for six months or a longer period of time.

Advice!

A recession is one of the phases of the economic cycle that always follows a period of economic expansion, accompanied by the achievement of a peak point in business activity, and precedes the phase of economic crisis and depression.

It is in this state, in a state of recession, that the economies of the vast majority of countries in the world find themselves in at present. Thus, economic growth is necessarily replaced by economic recession.

Depending on the factors that serve as the beginning of the recession phase in the economy, three types of recession are distinguished. In the first case, an economic recession occurs under the influence of unplanned and very profound changes in market conditions.

Among the phenomena that entail such consequences and actually a recession include wars or a sharp change in world prices for natural resources, or more precisely, for oil. An economic recession caused by such phenomena is especially dangerous. Such a recession cannot be predicted or foreseen, so they have a very painful impact on the country’s economy.

The prerequisites for the second type of recession are more likely to be political or even psychological in nature. These include declining levels of consumer confidence or growing uncertainty among entrepreneurs or investors.

Such a recession is less harmful for the country’s economy, and the current situation can be quite easily corrected by lowering interest rates or artificially creating some excitement in the economy.

The third type of recession occurs when the economy loses its equilibrium and is characterized by rapidly rising debts and falling prices in the capital and stock markets.

The prerequisites for the recent global economic downturn and, accordingly, recession were an unprecedented increase in commodity prices caused by active consumption, an unreasonably large number of mortgage loans issued to borrowers with a high degree of risk, as well as the rapid development of the activities of speculators who created a whole world of fictitious capital.

Warning!

An economic recession inevitably leads to a crisis, and in the worst case, to a prolonged depression.

It is impossible to avoid this process, however, the state, which plays an important role in the process of economic recovery, can significantly shorten the duration of the recession and reduce the scale of the consequences of the economic downturn in a particular country and the world as a whole.

What is a recession in the economy

What does the word "recession" mean? Translated from English, recession means “fall, decline.” The word comes from the Latin recessus, which means retreat. Speaking in terms of economic cycles, an economic recession is a moment of decline after a boom, followed by a bottom phase, followed by a rise, after which a peak or boom occurs again.

A variant of a deep recession is called a depression. However, these days the term is completely unpopular. More often they talk about a recession. The most famous great recession or Great Depression occurred in the United States in 1929.

Since then, as economist M. Rothbard notes, the US government was so afraid of something like this happening again that it literally banned the term “depression” and introduced the more common “recession.” But over time, recessions began to occur more and more, so instead of them, the concepts of recession, deviation, and slowdown in production were introduced.

Starting with the collapse of the real estate market in the United States, the economy of the largest power on the continent of North America pulled the whole world with it. This decline led to a reallocation of resources in markets. People in all countries lost money, the savings of many sank into oblivion.

Causes

By definition, the economy develops in cycles. The cycle of contraction (recession, recession) is followed by a cycle of expansion (rise). Due to its cyclical nature, it cannot be said that a recession is an unpredictable or unusual phenomenon. On the contrary, almost any recession can be predicted.

Attention!

The market is trying to find a new equilibrium point, as a result this leads to a decline in production and a decrease in investment activity.

Types

There are three types of recession depending on the causes.

Political recession. It is based on psychological reasons. As a rule, it is associated with an increase in investor uncertainty and entrepreneurial doubts. Consumer confidence is declining.
Debt recession. Associated with an increase in the country's external debt. Characterized by falling stock prices and outflow of funds. May last for many years.
Force majeure recession. Occurs due to powerful factors such as war or a sharp decline in oil prices.

Each type of recession is surmountable and will pass in any case, the question is how long this economic phase will last.

The first type is easily eliminated by increasing citizen confidence, for example, by lowering interest rates. The second type may take years to emerge and move from the depression phase to growth. It is associated with the restructuring of the economy of a country or an entire region and finding a new equilibrium point.

The third type of recession, on the one hand, is the most unpleasant due to the suddenness of its occurrence, on the other hand, measures must be selected depending on the factors that provoked the economic recession.

Signs

How to understand that an economic recession has already begun? A number of characteristics that indicate the beginning of a recession followed by stagnation:

increasing the level of inflation in the country;
rising unemployment;
fall of stock indices;
reduction in production rates;
outflow of capital abroad.

According to another classic definition, the signs of a recession are:

the fact that the phase follows the boom;
decrease in business activity;
decline in production.

The above economic indicators are clear to specialists, but how can ordinary citizens see the impending recession?

Due to the fact that prices for well-known goods have crept up, purchasing power, i.e. how many goods can be bought for the same money as before has fallen. Inflation has increased (you can learn about this from the news), unemployment is growing.

Advice!

Consequences

Growth gives way to boom, but they cannot last forever, some economic instruments become imperfect, new technologies and production appear. And this is good.

A recession is, in some way, a “cleansing” of the economic body of a country or a number of states. It helps the economy rejuvenate and enter a new stage of development.

For ordinary citizens, the consequences of a recession are:

job losses;
decrease in purchasing power;
depreciation of money;
reduction in the variety of goods due to a decline in production.

source: http://business-poisk.com/recessiya-v-ekonomike.html

What is a recession: definition, signs and characteristics, types of recession, causes and consequences

Recession (from the Latin recessus - retreat) is a phase of the economic cycle, characterized by a moderate, non-critical decline in production in the country; recession is also called a slowdown in the rate of GDP growth or its decline, accompanied by an increase in unemployment, a decrease in bank lending and a decrease in the volume of investment in fixed capital. A recession, as a rule, is a precursor to a crisis in the economy.

Why does a recession occur?

The causes of a recession may be:

natural development of the economy, when after strong growth, having exhausted the possibilities for upward movement, the economy needs a break;
wars and civil strife;
sharp changes in prices for raw materials, in particular oil;
undermining customer confidence;
uncertainty among entrepreneurs and investors;
growth of internal and external debts (possible consequence - default);
fall in stock and capital prices.

What are they?

Depending on the reasons, there are three types of recession:

Unplanned recession. This type of recession occurs as a result of some unexpected events: wars, a sharp drop in world prices for oil, gas and other minerals. As a result, there is a deficit of financial budget funds and a decrease in the level of GDP.

Recession at the political or psychological level. This type of recession arises as a result of increased distrust among the consumer population, entrepreneurs and capital holders. It is a consequence of a decrease in purchasing activity, a decrease in investment and a decrease in the value of securities.

Recession as a consequence of the country's external debts. As a result of such debt, there is a decline in prices and an outflow of funds from the country. This type of recession is considered the most dangerous and can last for many years.

What is it characterized by?

Characteristic signs of a recession are:

Gradual, without sudden jumps, increase in the unemployment rate.
Industrial production volumes are falling, but enterprises operate producing products in smaller volumes.
Fall in stock indices.
Growth of inflation indicators.
Increased capital outflow abroad.

In a modern economy, a recession is characterized by a non-critical drop in key indicators over two quarters.

When are you attacking?

The economic cycle consists of four phases:

growth (rise),
stagnation (stabilization, absence of any dynamics),
recession (fall)
crisis (depression)

The duration of the economic cycle in current realities is 10–15 years.

What are the consequences of a recession?

The main characteristic consequences of a recession are:

Fall in production volumes in the state.
Collapse of financial markets.
Reducing the number and size of loans issued by banks.
Rising interest rates on loans.
Rising unemployment rate.
Reduction in citizens' incomes.
Rising inflation.
Systemic price increases.
Increase in public debt.
Fall in GDP.

source: https://fortrader.org/birzhevoj-slovar/ekonomicheskie-ponyatiya/recessiya.html

Recession, what is it in simple words - causes and significance in economics

The question of what a recession is in a state’s economy may worry the majority of its residents who are interested in the situation. Understanding this economic process will allow you to understand what impact it has on the economy and life of the state and whether it is worth fearing.

Concept

There are many definitions of this economic term, so it is worth familiarizing yourself with the most significant ones. A recession is one of the phases of the economic cycle, which is a precursor to a financial crisis.

Attention!

Recession is a term related to the macroeconomics of a state; it denotes a decline or noticeable reduction in production rates immediately following a so-called boom, characterized by a gross domestic product indicator equal to zero or even having a negative value for 6 or more months.

Recession is a moderate, non-critical decrease in production indicators, entrepreneurial activity and economic development rates, usually associated with a decrease in GDP.
Recession is a slowdown or decline in the growth rate of gross domestic product.

A recession is one of the phases of the economic development cycle, which follows the economic recovery, accompanied by the achievement of the maximum indicator of economic activity. This phase is a precursor to depression or crisis.

Recession is a state of the economy when GDP has been declining for 2 or more quarters, that is, factories begin to reduce output, stores sell less, and, accordingly, buyers buy less.

Advice!

A recession is a serious reduction in business activity in a country, which is accompanied by a large number of negative consequences (unemployment, decline in stock exchanges, reduction in investment, etc.).

A recession is certainly accompanied by three main signs:

The phase of economic life immediately following an expansion or boom;
Accompanied by a reduction in economic activity;
Leads to a reduction in production.

Many definitions mention that a recession is a phase of the economic development cycle, and the cycle itself consists of 4 main phases:

Climb.
Stagnation.
Recession.
Economic depression.

The duration of all phases of the economic cycle, as practice shows, is about 10–15 years.

The recession does not mean at all that important indicators have stopped growing. This phase may indicate that the growth rate of key indicators simply decreased over the course of six months. Usually a recession is a precursor to a crisis, but if all the necessary measures are taken in time, then such consequences can be avoided and the situation can be returned to normal.

Reasons for the attack

This phase of the economy can occur as a result of a whole list of various factors, starting from the cost of petroleum products and ending with the number of unemployed in the country. The main reasons for its occurrence are considered:

The emergence of conditions favorable to the development of a recession due to unplanned internal economic changes. Thus, this state of the economy may be caused not by economic events in the country, but by political ones, or by changes in prices at the world level for natural resources, and, in particular, oil.

The Russian economic region is dependent on the price of this mineral, and in the event of a serious drop in its value, the country's budget will lose a significant amount, which, in general calculations, leads to a drop in GDP.

Economists argue that this type of recession is the most dangerous due to the impossibility of predicting it in order to take measures in advance to support the economy.

A drop in the pace of industrial production processes, which inevitably entails a recession.
The transition of the economy to the recession phase can be provoked by a decrease in the income of the population, which leads to a decrease in the ability to buy and worsens the economic situation of the country.

Warning!

This type of recession is not the worst, and economists argue that it can be dealt with easily and quickly, preventing a crisis.

A recession may be a consequence of capital flight abroad or a reduction in foreign investment and government capital. As a rule, most of the investments are attracted by private entrepreneurs. And in order to avoid such a recession, the government should create conditions so that entrepreneurs seek to invest their funds in the national economy.

Kinds

Economists distinguish three main types of recessions, depending on the reasons for their occurrence:

Unplanned recession resulting from unexpected changes. Such events could be: the onset of war, a sharp decline in the world price of oil, gas and other minerals. The consequence of such events is a deficit of financial budget funds and a decrease in the level of GDP.

It is this type of recession that is most dangerous due to the fact that it is simply impossible to foresee, and it is even more difficult to determine an effective exit method.

Recession at the political or psychological level, resulting from increased mistrust of the consumer population, entrepreneurs and capital holders. It is a consequence of a decrease in purchasing activity, a decrease in investment and a decrease in the value of securities.

This type of economic recession can be overcome simply by regaining the trust of buyers, which is done by reducing prices, interest rates and by putting various psychological techniques into practice.

Recession as a consequence of the country's external debts. As a result of such debt, there is a decline in prices and an outflow of funds from the country. This type of recession is considered the most dangerous and can last for many years.

In addition to this causal classification, there is a division of recessions into types depending on the shape of the graph reflecting changes in GDP indicators:

V recession. Characterized by a fairly powerful and high-speed decline in GDP, which in such conditions does not reach depression. The fall in such circumstances is pronounced, unique and subsequently leads to a return of GDP to its previous level.
U recession. GDP in such a situation has a fairly long-term and stable position at a low level without serious movements along the schedule either up or down, with a rapid recovery in the future.
W recession. As a result of this phase of the economy, there is a fairly short-term jump in the growth and development of GDP to a high level in the middle of the recession phase. The graph of such a recession resembles several type V recessions in a row.
L recession. In such a situation, there is a fairly rapid decline in GDP, which is followed by a long and fairly smooth recovery.

Characteristics of an economy in recession

It is possible to identify that a stage of the economic process such as a recession has already begun in a country by the presence of a list of its obvious factors:

The unemployment rate is gradually increasing without sudden jumps.
There is a clearly noticeable decline in production, but production does not stop, but functions, providing citizens with the necessary products, but in smaller volumes.
Stock indices began to fall.
Inflation indicators are increasing.
There is a significant transfer of funds abroad.

At the stage of economic recession, not all its signs become critical. So, for example, a recession is indicated by an increase in inflation of only 2–3%, at a time when all other recession indicators are active, which is evidence of the onset of an economic depression.

What does it lead to?

The main and most obvious consequences of this period of economic decline include:

Reduction in production volumes of the country's enterprises.
A complete financial collapse of the markets.
Reducing the number and size of loans provided by banks.
Increase in lending interest rates.
Soaring unemployment rate.
Decrease in income of the population.
Inflation rate increases.
Constant price increases.
Increasing the country's debt.
Fall in GDP indicators.

The most serious, dangerous and powerful consequence of a recession is the economic crisis. The decline in production volumes leads to a decrease in the number of jobs and massive layoffs. People lose their jobs, begin to save, cutting their expenses, which results in a reduction in demand, which leads to an even greater decrease in production volumes.

Attention!

The debt of residents and enterprises to banks also begins to increase, which react by tightening the conditions for issuing loans. Lending volumes are sharply reduced, and this leads to a reduction in investment in science and industry.

A reduction in production volumes leads to a collapse of markets and a decrease in the value of securities, especially shares of large industrial companies.

Such changes are followed by a depreciation of the country's monetary units, leading to an increase in prices, a reduction in income levels, an increase in citizen dissatisfaction and a reduction in the quality of life for the population.

The government, trying to correct the situation, begins to borrow more from its neighbors and all this leads to a reduction in the same GDP, which is a sign of the onset of a recession that can develop into depression and crisis.

The difference between recession and stagnation

The period of decline or increase is the main difference between recession and stagnation.

The stagnation phase is characterized by:

Complete economic stagnation lasting for a long time.
Increase in the number of unemployed.
A serious decline in the quality of life of citizens.
Low or almost zero GDP.

If economic stagnation is characterized by high inflation, then it is called stagflation.

A recession is not characterized by a rapid decline, but not by stagnation. And this clearly indicates that recession and financial stagnation are distinguished by periods of decline in GDP and its consequences for the situation in the country.

To understand whether a decline during a recession or stagnation during stagnation is worse, it is necessary to consider each specific case separately.

A recession does not mean that the country is facing depression and people should prepare for difficult times. With a competent economic approach to government management, all the consequences of a recession can be prevented, bypassing the phase of economic depression.

But, of course, this is not always possible, so before drawing conclusions about the economic situation in the country, you should consider all economic indicators and the reasons for the onset of a recession.