What Is Recession? All You Need To Know

Countering opposition heat on high inflation in the country, Indian Finance Minister Nirmala Sitharaman has recently said in Parliament that India won’t slip into a recession or stagflation. She stressed that the "Indian economy is showing positive signs and held inflation well, within seven percent, despite global headwinds." 

What Is A Recession?

Recessions are marked drops in economic activity that can continue for several months and even years. It is considered a recession, when a country's economy faces negative growth in gross domestic product (GDP), rising unemployment, declining retail sales, and reduction in income and manufacturing activities over an extended period. Recessions are regarded as an inevitable component of the economic cycle, or the predictable rhythm of expansion and recession in a country's economy.

The global financial markets fell sharply after the US reported its second-consecutive quarterly drop in Gross Domestic Product (GDP), indicating a "technical recession". According to the US Bureau of Economic Analysis, the nation's annualised Q2 growth decreased by 0.9 per cent instead of a 0.5 per cent increase as estimated.

However, US President Joe Biden has ruled out an economic downturn, although the updated GDP figures due this week may show the economy shrinking for a second-consecutive quarter. "We're not going to be in a recession in my view," Biden told reporters.

Why Do Recessions Happen?

Several economic theories try to explain why and how the economy could enter a recession. These theories can be broadly classified based on financial, psychological, and economic issues. Some economists place the highest importance on economic changes, including industries structural changes. For instance, new technology could quickly render some industries obsolete. Also, rising costs across the economy, including higher oil prices, could push the economy into a recession.

CNN reported that preliminary data issued by the German Federal Statistics Office on Monday showed that Germany’s retail sales fell by 8.8 per cent in June compared to the same month a year earlier.

It is the biggest drop since the German government began keeping records in 1994. According to the report, Germany's economy looked bleak, with rising inflation limiting people's spending and a brewing energy crisis raising the prospect of a recession. 

What Occurs During A Recession?

In a recession, economic output, jobs, and consumer spending all decline. As the US Federal Reserve lowers its benchmark rate to assist the economy, interest rates are also expected to decrease. The government's budget deficit grows due to declining tax collections and rising spending on social programmes, like unemployment insurance, as more people become eligible for jobless benefits.