Recession, what does it all mean?
The Economic graph constantly goes up and down with time. One of these points is known as recession. It is observed when the prices start to increase, the living standard starts to fall, unemployment rises, and businesses stop expanding. Decrease in GDP (gross domestic product) is also the sign of recession. Economic recession is defined as a significant decline in the economic activity across a country, lasting longer than a few months.
United States is the most effected country the agency that is officially in charge of declaring a recession in the United States is known as the National Bureau of Economic Research, or NBER. The NBER defines a recession as a "significant decline in economic activity lasting more than a few months."
Factors that push an economy into recession:
- Shortage of finance
- Related to shortage of mortgages and credit crunch
- Costs push inflation squeezing incomes and reducing disposable income
- Collapse in confidence of finance sector causing lower confidence amongst 'real economy'
Effects of recession:
- Inflation: the commodities reach their ever highest prices and people generally cut down on costs.
- Lower income: As people cut down on costs, they tend to buy less which reduces the income and thereby fewer profits or no profits.
- Increment in mortgage rates: Lenders increase the mortgage rates in a bid to cover the losses they bear during that time.
- Unemployment and layoffs: In order to cut down on costs, companies cut down on employment opportunities thereby leading with unemployment in the economy.
When an economy sees more extended periods of economic recession, it goes beyond a recession and is declared that the economy is in a state of depression. The World Bank projected world output to grow by a mere 0.9 per cent in 2009 (compared with 2.5 per cent in 2008 and a high of 4 per cent in 2006) Moreover, the World Bank could identify no possible driver for a recovery in the coming months, or so they say, l guess we just have to wait and see and hope for the best!
(Sources: recession.org, stock-market-investors.com, sify.com, intrade.com)
