What happens in a recession


The term recession describes a contractive economic period. A recession is when the economy has not grown or declined compared to the previous quarters for two consecutive quarters (decline in GDP). According to this definition, Japan has had the longest period without a recession in any OECD country (132 quarters). Australia had the longest term in 2017 with 102 quarters.

According to the German Council of Economic Experts, there is a recession when the relative output gap decreases by at least two thirds of the respective potential growth rate with a currently negative output gap.

What are the typical characteristics of a recession?

The recession is one of the four phases an economy's business cycle can go through. This is the phase when the economy slows down. The other four phases are the expansionary phase (upswing), the boom (boom) and the depression (economic low).

Often one speaks of a recession only when an economic downturn is visible in two consecutive quarters compared to previous periods or the economy stagnates. Often, however, it can already be recognized beforehand by falling stock exchange prices. The gross domestic product can be used as an indicator of growth. Characteristic features of a recession are a decline in demand, falling prices on the stock market, falling or stagnating wages, interest and prices, a decline in willingness to invest, overcrowded warehouses, pessimistic expectations about the future economic situation or the beginning of short-time work and the reduction of overtime as well as the increasing number of employees Bankruptcies.

When does a recession happen?

In most cases, a recession follows a phase of boom. In it, companies that are no longer viable apart from the technical and economic conditions are sorted out from the market. If the downturn prevailing during the recession intensifies or the stagnation of the economy continues for a longer period of time, one speaks of a depression.