The life cycle of business activity of any enterprise or economy of an entire state includes several stages. First there is a rise, then the work reaches its peak. Sooner or later, a recession will occur, which may end in complete decline. The decisive factor is the third stage preceding the crisis. This stage is called recession. Let's talk about it in the article.
Economic recession: general information
There are two ways out of recession. The recession of the economy can lead, as was said above, to the complete decline of the country with all the consequences arising from it. The decline in activity can also be used by the government to find solutions to pressing problems that will allow us to enter a new growth cycle.
The concept
The state of the economy, which often occurs after an increase in all indicators and has an uncritical character of decline in production, is called a recession. During this period, deterioration of key indicators affecting macro indicators is noted. The fact that the economy is in recession is evidenced by:
- The decline in GDP.
- Decrease in incomes.
- Deterioration of investment attractiveness.
- Decrease in production volumes of industrial enterprises.
- Decrease in consumer activity.
An economy in a state of recession means that an unfavorable period has come for the country. During it, enterprises reduce production turnovers, produce fewer goods, citizens receive cut salaries, which is why they begin to save.
Causes
An economy in recession may be due to:
- The collapse in gas and oil prices. Their decline leads to an economic recession in states where these resources act as a key strategic product.
- Active growth in the cost of raw materials. It can be triggered by increased consumer demand and hype.
- Issuance of an unacceptable amount of mortgage loans with a high percentage of risk.
- Decrease in production volumes in all industries.
- Decrease in salaries and other incomes of citizens. This entails, accordingly, a deterioration in the purchasing power of the population.
What happens in the economy after the recession? A recession inevitably results in a depressed state or crisis. Under all economic laws, such a state cannot be avoided. However, thanks to the work of analysts and other specialists, the process can be significantly smoothed out. The work of higher state minds will reduce the negative effect of the recession and reduce the scale of the consequences.
Distribution area
If in any country the economy is in recession, then this can lead to negative consequences not only within this state. Currently, there is active international cooperation. The economic activity of one country may have a close relationship with certain sectors in other states. Thus, a recession in one subject will inevitably lead to a deterioration in the situation in another. This, in turn, can lead to a global global crisis. So, in particular, according to some analysts, the EU economy is in a deep recession. In the framework of international relations during the recession, a decrease in the indices on the stock exchange is noted. As a result, the state currency of the country in whose economy deterioration is noted depreciates. This, in turn, causes the likelihood of default on external debt. When the economy is in recession, it is mainly enterprises operating in the country that suffer. They face the need to reduce production volumes due to inefficient consumption of goods. Untimely payments for delivered products lead to arrears of taxes and salaries. As a result, enterprises that are not ready for a crisis are declared insolvent (bankrupt). The impact of the recession is keenly felt by the direct consumers of the goods. The population receives lower salaries, people become insolvent, can not fulfill credit obligations, fall into debt holes.
Classification
When the economy is in recession, experts analyze the causes of this situation. Based on it, the type of decline is determined:
- Unscheduled. Such a recession arises under the influence of such negative factors as the unpredictable decline in world prices for strategic resources (oil, gas), the outbreak of war. As a result of these processes, a deficit forms in the state budget, and gross indicators begin to decline rapidly. An unplanned recession is considered by many experts to be the most dangerous. This is due to the impossibility of timely forecasting of such a decline and, accordingly, response to it.
- A recession with a psychological or political character. The reasons for this decline are the resulting mistrust of foreign investors, local producers and private consumers. Such a recession is manifested in a decrease in purchasing power, a decrease in the volume of financial receipts, and a fall in the rates of bonds, stocks, vouchers and other securities. Such a recession can be easily overcome. The exit of the economy from recession in this case is carried out using methods of financial and psychological impact.
- The recession arising amid a decline in macroeconomic indicators and an increase in external debt. The consequences of such a recession are the outflow of capital, a decrease in the value of stocks, and a long-lasting long depression.
Period
A recession in the economy is recognized if a decrease in production volumes and a deterioration in gross indicators occur for more than six months and begin to take a protracted character. The duration of such a period will directly depend on the reasons that caused this situation. For example, if there is a recession of a political or psychological nature, then the duration of the recession can be reduced by restoring the trust of the population and businessmen. For this, loyal measures are applied in the areas of credit and social security. The situation with an unplanned recession is different. As mentioned above, to predict such a decline is quite difficult. It depends on negative factors of a global nature. A state in which a decline in production is observed cannot affect them. In such a situation, the only thing that analysts can do is to develop measures aimed at minimizing the negative effects.
Recession in Russia
The state of the domestic economy directly depends on the indicators of the oil and gas market. The rapid fall in energy prices entails a number of negative consequences for the country. First of all, the volume of revenues that go to the budget fund from the sale of strategic products is reduced. Stock indices begin to fall, followed by the weakening of the ruble. The decline in production causes a decrease in incomes of citizens. Consumer activity is worsening. With a simultaneous decrease in citizens' incomes, prices for services and goods are rising. The economic downturn in the country is also due to external factors - the sanctions of several countries of the world. Since 2015, relations with various international corporations have been severed, which jeopardized the functioning and development of large enterprises and had an extremely negative impact on the GDP indicator. As previously noted by experts, this condition could last until 2017. However, today the situation may change if an agreement on the freezing of oil production takes effect.
Recession and stagnation
These two concepts have significant differences. The recession is characterized as a moderate economic downturn. At the same time, stagnation is characterized by a complete halt of key strategic sectors. In this period:
- Trading and manufacturing enterprises stop work.
- There is massive unemployment.
- Incomes are decreasing, and the quality of life of the population is deteriorating.
