A recession is a period of slow or negative economic growth. It’s one of four phases in the economy’s endless cycle of peak, downturn, trough and recovery—and it happens to all countries at some point.
A key sign of a recession is a sharp drop in demand for goods and services. Consumers can feel squeezed by a combination of factors, including high inflation (which makes some things cheaper and others more expensive), rising interest rates, a decline in employment, or a general sense that the economy isn’t doing well.
During a recession, companies may also lay off workers or cut back on production to reduce expenses. That can lead to less spending by consumers, which in turn can lead to lower profits for businesses. Eventually, lower profits can cause even more layoffs and a downward spiral of decreasing production and spending.
In addition to the financial stress that many people experience, a recession can also lead to political unrest. People often get angry about things they can’t afford, like higher bus fares or housing costs. These protests can sometimes escalate into larger movements, as we saw in the COVID-19 pandemic and oil crisis of 2020.
The National Bureau of Economic Research uses three criteria to define a recession: depth, diffusion and duration. Depth refers to the degree to which key economic indicators deteriorate; diffusion measures how far the weakness spreads among industries or economies; and duration refers to how long the extreme weakness lasts, usually measured in months or quarters.