What is a recession?

A recession is a broad and significant decline in economic activity. Output, income, employment and spending may weaken together. Not every slowdown is a recession: an economy may still grow at a lower rate. Definitions and official dating methods differ between countries.

How can a recession be identified?

1. The two-quarter rule Two consecutive quarters of falling real GDP is a commonly used technical indicator, not a universal or exclusive official definition. The duration, depth and spread of the decline also matter. Some institutions examine several monthly indicators together. 2. Indicators to examine Industrial production, employment, real income, consumption and trade volumes help explain conditions. A decline in one sector does not establish a whole-economy contraction. Inflation can cause nominal sales growth to conceal falling real sales. 3. Possible causes Financial crises, weaker foreign demand, uncertainty, major supply disruptions or excessive debt can trigger contractions. Tighter financing conditions can also slow spending. Different causes mean that the same remedy cannot be expected to work equally well in every recession.

Consequences and recovery

4. Households and businesses Job losses, shorter working hours and uncertain income can affect households. Lower business sales strain cash flow and can delay investment. Effects vary by sector, debt structure and available social protection. 5. Policy responses Monetary and fiscal policies may limit lost demand. High inflation, exchange-rate pressure or public-finance problems can constrain the response. Targeting, duration and financing of support matter; no single instrument solves every problem. 6. What does an exit mean? A return to growth does not immediately restore lost output or jobs. Employment may recover later than GDP. Depression generally describes a much deeper and longer contraction; not every recession is a depression.