There is a lot of confusion about the difference between economic recession and economic depression. This article gives definitions, shares examples and explains the key indicators to identify economic recession or depression.

What is an Economic Recession?

An economic recession is a general downturn in economic activity in a country or region. This can be measured by factors such as production, employment, income, and spending. A recession occurs when there is a downward trend in the business cycle, typically marked by a decline in output and work and a decrease in income and spending. Often, businesses will delay investment during a recession. A recession can be limited to a country or region, or it can be global.

A recession is usually considered an adverse event, as it can increase unemployment and poverty. Sometimes it is also connected with an economic bubble that “bursts.” However, there are some positive aspects of a recession. For example, businesses may reduce costs during a recession, which can help them become more profitable in the long term.

According to The National Bureau of Economic Research (NBER), a recession is – “A significant decline in economic activity spread across the economy, lasting more than a few months.”

Indicators of economic recession:

  • Decline in real GDP
  • Decline in real income
  • Slowed international trade
  • Decline in retail sales
  • Rise in unemployment
  • Decline in consumer spending
  • Decline in industrial production

The inverted yield curve: A recession predictor?

An inverted yield curve is a situation where short-term interest rates are higher than long-term interest rates. This occurs when the market expects economic conditions to worsen in the future. An inverted yield curve is often seen as a predictor of a recession, as it indicates that the market expects a decline in economic activity.

An inverted yield curve can harm the economy. When short-term interest rates are higher than long-term interest rates, it can lead to a decrease in investment and a slowdown in economic growth.

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