What Is Recession And How Can It Impact The Economy?

By Erica Nsunjo / October 24, 2020 | 9:31 am



Global economy

For starters, a recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

A recession normally occurs when there is a widespread drop in spending (an adverse demand shock), this results in a slump in the market with goods and services not being availed of by people, purchasing power declines.

A decline in demand may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster.

When a country is experiencing a recession, its production slows down and in turn, prices go up. In fact, during a recession, many firms are forced to sell their products at throw-away prices and suffer from losses as a result.

According to economic analysts, there is always a general economic decline and setback during the recession. Recessions hinder development as Investors hesitate to invest, producers are unable to churn out products, and consumers lack the necessary money for purchasing power.

During a recession, both the consumers and producers need each other to thrive. In case, consumers do not have the purchasing power, then production suffers. Less production means fewer profits for producers who will find it difficult to run their business houses.

Major Impacts Of Recession On The Economy

Fall in GDP and Slump in the market

If a country’s economy is under recession, it means either sum of people are unemployed or there is a natural disaster that has grabbed people power to purchase goods due to limited income.

Production of goods and services will become difficult since producers cannot market them to people who are unemployed and whose purchasing power is down.

Inflation at its peak

Recessions trigger the general rise in the price level in an economy, resulting from a sustained drop in the purchasing power,

Reduction in the purchasing power automatically reduces production therefore the available consumer goods and services are expected to be hiked as far as a company sees fit for profits generation.

The decline in stock prices

When a recession hits, Investment suffers, since the general industrial production is badly affected, investors may decide to pull back or even out of business to avoid investing in companies that might suffer losses.

Indefinite Business closure

Sometimes during the recession, some bigger companies are able to withstand the setbacks but smaller companies have a tough time and some may end up closing down indefinitely.

The variety of these small businesses depend most on the day-to-day sales however during a recession, the prices also keep fluctuating and the sales at times become abnormally low and less profitable.

Increase in unemployment

Recessions force business closure, which closure forces layoffs and pay cuts. People are thrown out of jobs because company sales continue falling due to the reduced purchasing power that generally reduces production and business gets to a standstill.

Depression

Recession causes depression if it persists for a long time. Negative trends are visible in the stock market and rapid unemployment is there. Companies need to be bailed out by the government. Public spending suffers a setback.

National debts on the rise

Governments may run to rescue the staggering economy, money gets diverted in bailing out companies and less to inject in other sectors on the economy, therefore less money can be spent by the government on development.

Recessions drain the economy and drain the governments respectively, there is an inability to reduce debt, and deficits and loans are the sole alternatives for governments around the world.





About Erica Nsunjo

Nsunjo Erica is a Practicing Journalist / Activist / Patriot / Practicing Politician / Practicing Entrepreneur / aspiring Lawyer, and a proud Ugandan. Because the journey is not static, I am molding it accordingly.

View other posts by Erica Nsunjo


More Articles From This Author







Trending Stories










Other Related Articles










SOKO DIRECTORY & FINANCIAL GUIDE



ARCHIVES

2020
  • January 2020 (272)
  • February 2020 (310)
  • March 2020 (390)
  • April 2020 (321)
  • May 2020 (335)
  • June 2020 (327)
  • July 2020 (334)
  • August 2020 (276)
  • September 2020 (214)
  • October 2020 (233)
  • November 2020 (242)
  • 2019
  • January 2019 (253)
  • February 2019 (216)
  • March 2019 (285)
  • April 2019 (254)
  • May 2019 (272)
  • June 2019 (251)
  • July 2019 (338)
  • August 2019 (293)
  • September 2019 (306)
  • October 2019 (313)
  • November 2019 (362)
  • December 2019 (319)
  • 2018
  • January 2018 (291)
  • February 2018 (213)
  • March 2018 (278)
  • April 2018 (225)
  • May 2018 (238)
  • June 2018 (178)
  • July 2018 (256)
  • August 2018 (249)
  • September 2018 (256)
  • October 2018 (287)
  • November 2018 (284)
  • December 2018 (185)
  • 2017
  • January 2017 (183)
  • February 2017 (194)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (205)
  • July 2017 (190)
  • August 2017 (195)
  • September 2017 (186)
  • October 2017 (235)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (165)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (245)
  • June 2016 (182)
  • July 2016 (271)
  • August 2016 (248)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (153)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (108)
  • May 2015 (116)
  • June 2015 (120)
  • July 2015 (148)
  • August 2015 (157)
  • September 2015 (188)
  • October 2015 (169)
  • November 2015 (173)
  • December 2015 (207)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950