Concept
Recession
Economics & FinanceWhat is a recession?
A recession is a significant and widespread decline in economic activity lasting across several months or quarters. It is traditionally identified by two consecutive quarters of negative gross domestic product growth alongside falling real income, employment, and industrial production.
In short
A recession represents a contracting phase in the business cycle where consumer demand falls, commercial investments shrink, and unemployment tends to rise. Formal institutions like the National Bureau of Economic Research assess its depth, diffusion, and duration before making an official determination. Managing recessions often demands countercyclical monetary and fiscal policy interventions.
Key facts
- What is the common technical rule for a recession?
- A common benchmark is two consecutive quarters of contracting real gross domestic product.
- How does the NBER define an economic recession?
- The NBER defines it as a significant decline in economic activity spread across the economy lasting more than a few months.
- How does Issue 7 address the possibility of a recession?
- The issue compares historical definitions against contemporary 2023 United States data to explore why market participants felt in crisis despite mixed signals.
Overview
An economic recession occurs when the total volume of goods and services produced by an economy contracts over a sustained period. During these downturns, household spending contracts due to reduced income or fear of job loss, prompting firms to curtail hiring and capital expenditures. Central banks often respond by cutting benchmark interest rates or expanding liquidity to stimulate lending and consumer purchases. While recessions can cause acute financial hardship and business insolvencies, they also liquidate unviable business models and reallocate capital toward more productive uses.
In the Agency editorial
In Issue 7, Thiago Patriota discusses the formal definitions of a recession published by the Federal Reserve Bank of St. Louis and the National Bureau of Economic Research. The author notes that while the United States did not meet all clinical symptoms of a technical recession in early 2023, the sudden failure of regional lenders triggered widespread fear of a systemic contraction. The text encourages founders to build organizational resilience before formal declarations occur.
Source editions
Where this entry comes from in the Agency editorial.
Also from these editions: concepts
Related terms
- Deflationaryadjective
- Tending to cause or associated with a general and persistent decline in price levels across an economy.
- Recessionnoun
- A significant and widespread decline in economic activity lasting across several months, typically marked by falling GDP, reduced industrial production, and rising unemployment.
- Stagnationnoun
- A state of inactivity, sluggishness, or lack of growth in an economy or commercial system.
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Sources
- Issue.7 - Economy in Crisis Pt.1 (opens in a new tab), Agency Brasil