What is a recession?
A recession is a period when a country's economy shrinks instead of growing. Businesses sell less, hiring slows down and unemployment rises.
How to recognise one
Popularly, a recession is said to occur when GDP falls for two quarters in a row. There is no single official definition: in practice, analysts also look at employment, consumption and industrial output before making the call.
Why it happens
- Loss of confidence: people spend less and businesses invest less.
- High interest rates: credit gets more expensive and activity slows.
- External shocks: financial crises, sharp energy price rises, pandemics or wars.
- Bursting bubbles: when prices of assets, such as housing, suddenly fall.
How it can affect you
- More difficulty finding or keeping a job.
- Fewer pay rises.
- Falls in the stock market and in the value of some investments.
- Credit that is harder to get.
How economies recover
Central banks usually cut interest rates to encourage credit, and governments may increase public spending or lower taxes. Recessions are usually temporary, although their length varies a lot.
What you can do
They cannot be predicted exactly, but it helps to have an emergency fund, avoid excessive debt and not invest money you will need soon.
A recession is a prolonged fall in economic activity. It usually brings more unemployment and less spending, and it passes with time.
Informational and educational content. Not financial advice.