Recession is defined as the decline in economic activity that lasts for more than a few months. It can be triggered by various economic and natural events. The effects of recession are easily reflected on a nation’s real income. Whenever there is a negative economic growth for continuous 6 months (or 2 consecutive quarters), the situation is termed as recession. During recession unemployment increases and the income of people decreases for a short time period of 6 months. If the recession continues for over a year then it transforms into a depression. According to John M. Keynes, a prominent British Economist, the main reason for recession is the decrease in aggregate demand for goods and services.
Though economic recession is a short term event, its effects have long lasting consequences. Recession leads to
- Fall in income – shorter working week.
- Rise in poverty
- Fall in real estate prices and stock prices
- Increase in inequality and an increase in relative poverty
- Higher government borrowing (less tax revenue)
- Firms go out of business.
The people who are affected the worst are those who are having jobs in private companies and those who are self-employed. People working in private firms lose their jobs while self employed or small businessmen see a drastic decline in their profits.
The effects also depend on the type of recession. The 2009 recession hit the financial sector the hardest. Many highly-paid ‘white-collar’ workers lost their jobs. Banks saw large-scale losses and falls in profit. It hit the housing sector very hard.
Recently, the world has been struck by COVID 19 recession also known as the Great Lockdown. It particularly affected low-income workers in the tourism sector which were devastated by the Lockdown. It has also caused the world market to crash. While some of the leading international markets recovered, the World Bank suggests that it could take another 5 years for the rest of the world market to fully recover from the recession caused by COVID lockdown.