What is Economic Recession ?

In macroeconomics, recession is defined as a distinct decline in any particular country's Gross Domestic Product which is also called as GDP. In some other cases, when a country faces negative real economic growth, for two or more successive quarters of a year, that’s also termed as state of recession. Though, the exact definition of recession has always been controversial and economists tend to differ in defining recession.

According to ‘The National Bureau of Economic Research’ recession is defined as "a significant decline in economic activity spread across the economy, lasting more than a few months." In general, recession affects a country’s overall economic activities, including, investment, employment rate, profits data of companies etc. Recession is almost always accompanied by sharp increase in prices of commodities. When recession continues for a long duration and with severe implications, it’s termed as economic depression whereas complete breakdown of economy is referred as economic collapse.

The exact causes of recessions are a subject of hot discussions amongst the economists and academicians. However, the general rule says, it’s caused by combination of several potential dangerous factors. It could be caused by cyclical movement of economy or by some external elements. Few major causes are; inflation, currency crisis, speculation, national debt etc.

External reasons can be war and other factors which are beyond the control of a particular economy. Apart from these, other reasons can be high oil prices (as most countries depends upon oil import for industrial growth), weather conditions, some kind of national calamities among others. Several other economic factors also affect recession factor like, lower interest rates which adversely affect savings of households and consequently banks. With very little savings, banks can not provide loans and that causes severe bottleneck for major infrastructure projects which finally lead to low economic growth and impending recession.
The role of money supply is also very crucial in causing recession. Inflation of money supply or mishandling of excessive liquidity or even crunch of liquidity also invites recession. Overall, economic recession badly affects any economy. Recession implies inflation or deflation, foreclosures, bankruptcies and banks lending less money etc.
The current world economy has definitely entered into recession. The most powerful economy USA is going through recession and that has affected other economies as well. India is witnessing slow down and lower GDP growth projection but as a country it is yet to enter into recession. The big economies that enjoyed uninterrupted growth and development for decades are facing lack of demand from consumer side.

The average spending by consumers has decreased drastically. With less demand there is bound to be less production and rising unemployment condition. Many industrial and corporate houses are churning their workforce.
Stocks markets are major indicators of economy trend. A rising economy is always well reflected on the bourses. Shares prices of many renowned companies have touched the rock bottom in the current economic turmoil. Indian stock exchange has also lost considerably of its value in a period of 8-10 months. Most of the world economies including India are declaring bail-out packages for doomed industries.

Several high-flying companies have come back to earth, battered and bruised. Big shots names in financial world have gone bankrupt or acquired by other companies or nationalized. The housing bubble has sent many private equity investors into tailspin. Things are definitely not rosy as can be witnessed from falling crude prices, reducing exports, low inflation and decreasing demand from consumers.

(Resource : Compilation from Some Internet articles)