An economic recession is typically defined as a significant decline in economic activity that lasts more than a few months. It’s visible in the economic areas such as income, production, employment, and consumption.
The most common rule-of-thumb definition is two consecutive quarters (six months) of negative growth in real Gross Domestic Product (GDP), the broadest measure of a country’s economic output. In today’s world however, modern commentators and policymakers like to call a development with two consecutive quarters of negative growth a “technical recession”. However, it’s important to note that this is a generalized definition, and not all economists agree with this definition. This is since it is generally very difficult to have a formal definition of what does or does not constitute a recession. If we have an economy that shrinks by 0,1% for two consecutive quarters but the third quarter increases by 2%, would this be called a recession or perhaps just a lack of quarterly GDP growth based on certain factors. Another factor that makes this definition difficult to deal with is recession. GDP is the broadest measure of a country’s economic output based on the data available at the time. It is subject to revisions (sometimes heavy revisions) as more data becomes available.
The National Bureau of Economic Research (NBER) in the United States, which is often looked to for defining U.S. recessions, uses a more holistic approach. They don’t specify a minimum duration or level of decline in economic activity to define a recession. Instead, they consider a combination of various economic indicators such as GDP, employment, real income, and others. They view a recession as a period of “significant decline in economic activity spread across the economy, lasting more than a few months”. They specifically mention that a recession “involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. In our interpretation of this definition, we treat the three criteria—depth, diffusion, and duration—as somewhat interchangeable. That is, while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another. For example, in the case of the February 2020 peak in economic activity, the committee concluded that the subsequent drop in activity had been so great and so widely diffused throughout the economy that, even if it proved to be quite brief, the downturn should be classified as a recession”.
During a recession, businesses typically slow their growth or contract, unemployment rates increase, and the economy generally slows down. The length and severity of a recession can vary widely, from a few months to more than a year, and the recovery period can also vary