Recession, which is a macroeconomic concept that we have been hearing frequently lately, is economic stagnation with its most basic definition. If a recession occurs and continues, it means that there are big problems in the economy of that country. Let’s take a closer look at what a recession is and see what happens when it happens.
As anyone who follows the news can see, the whole world is going through tough times economically, and a concept often referred to as a recession is mentioned. Recession, which is a term belonging to the field of macroeconomics, means recession in the country’s economy in its most general definition. Recession, which occurs due to many different reasons, It happens from time to time in all economies of the world.
In order to talk about a recession situation in a country’s economy, it is necessary to examine the economic data of a few months. Sometimes these economic data may even signal this before the recession begins. Come here as economic terms can be a bit confusing What is a recession in its most clear form, why does it happen, Let’s take a closer look at how ordinary citizens are affected when such a situation arises.
What is a recession, why does it happen, what happens after a recession?
Let’s start with the basics, what is a recession?
in a country’s economy recession state, It is called a recession by macroeconomics. In order to talk about recession, some economic data in the last two quarters of the country’s economy, that is, in the last six months, are examined. Among the analyzed economic data are gross national product, real income, employment level, industrial production, wholesale and retail sales.
When there is a downward trend, that is, a decrease, in all these economic data examined, this situation is called an economic recession, that is, a recession. According to the basic definition, this decrease must be lived through the last two quarters however, the National Bureau of Economic Research says that even a few months of this situation can be called a recession.
After the Industrial Revolution, the economies of all countries of the world showed a growth trend at the macroeconomic level. well All national economies are growing, albeit at varying rates. Sometimes this growth may stop on a monthly basis. However, if the growth in question stops for a long time and shows itself in many different economic areas, it means that there is an economic recession in that country.
What causes a recession? Reasons:
- Sudden economic shocks
- excessive debt
- asset bubbles
- high inflation
- high deflation
- Technological changes with massive impact
Sudden economic shocks:
Situations that cause serious financial damage on economic markets are called sudden economic shocks. For example, it was a great economic shock that OPEC stopped supplying oil to the United States without warning in the 1970s. To give a more recent example What happened with the COVID-19 pandemic It is a major economic shock worldwide.
Excessive debt:
In periods when the economy tends to grow, individuals and businesses borrow heavily at affordable prices. But at some point things break down and both individuals and businesses if they are unable to pay their debts There will be a huge gap in the economy market. Recession is inevitable as a result of not closing this gap.
Asset bubbles:
A few people may make a pointless decision to invest in X and then fail. However If these meaningless investments happen across the country or even the world Emerging asset bubbles could spell the end of both the local and global economy. For example, at the end of the investment bubble in real estate in the USA at the end of the 1990s, the first period of the 2000s gave birth to a major economic crisis.
High inflation:
Inflation is not always seen as a bad thing, all prices tend to increase over time. When this trend gets to extremes controlled by interest rates set by central banks. However, the fact that inflation is high and this level becomes almost continuous will create gaps in the economies of the countries that are difficult to close.
High deflation:
Deflation is the opposite of inflation, when prices fall gradually. Even though this sounds good This causes wages to decrease over time. Due to constantly falling prices, businesses pull back and business stops spending. When these happen, recession is inevitable.
Technological changes with major impact:
We did not experience a large-scale technological change after the industrial revolution, but we know that we can experience it at any time because With the development of artificial intelligence autonomous systems also began to develop. Many manufacturers have even started to use semi-autonomous systems. After the widespread use of autonomous systems, we can look for today’s recession with candles.
So, what happens after a recession?
If you think that the recession will not directly affect the citizens because it is a macroeconomic situation, you are unfortunately wrong. Because recession means; It means the decline in gross national product, real income, employment level, industrial production, wholesale and retail sales. If you are aware all these economic data are matters that directly concern the pockets of the citizens.
When a recession begins, unemployment rises first. As your fear of being unemployed will increase, as there are too many unemployed There is no hope of finding a new job. Even if you are out of your job, you may experience salary cuts or not get the raises you are entitled to. This situation is both a challenge imposed by the economy and the spoils of bosses in the face of abundant workforce.
When there is a recession, the investments made on stocks, bonds, real estate and similar investment assets investments lose value. Savings and investment plans are disrupted. Foreclosures increase as a result of unpaid debts due to unemployment and economic difficulties. As the economy turns upside down, businesses lose sales and many bankruptcies happen.
Because many people need to borrow money during a recession loan rates rise. Moreover, individuals and businesses with insufficient credit scores may not be able to get loans even with high interest rates. As the recession will reduce the confidence in the economy, investments will come to a standstill and meaningless price increases may be encountered.
How long will the recession last?
Of course, recession is not a situation that lasts forever, things will definitely improve at some point. COVID-19 recession in the USA for 2 months, Great Recession 2 years, The Dut Com Recession lasted for 9 months and the Gulf War stagnation for 1 year. Moreover, although these are situations that affect the global economy, they have lasted this long. In other words, the recession experienced by a country’s economy may last much shorter.
a macroeconomic term denoting economic recession. what is a recession, what causes it, what happens in a recession We answered the frequently asked questions and talked about the details you need to know about the subject. You can share your thoughts about the recession and its effects in the comments.