The official definition of recession is ‘when the gross domestic product (GDP) of a country declines for two or more consecutive quarters of a year, the condition is known as recession’. Normally, even before recession is declared officially, the economy goes through slow down for several quarters. So what’s the reason behind recession?
The answer lies in fundamentals of economics which says that, whenever an economy goes through several months and years of economic growth, the slowdown is inevitable. Growth period normally lasts for 6-10 years whereas recession is for a period of 6 months to 2 years.
The current world economy has definitely entered into recession. The most powerful economy USA is going through recession and that has affected other economies as well. India is witnessing slow down and lower GDP growth projection but as a country it is yet to enter into recession. The big economies that enjoyed uninterrupted growth and development for decades are facing lack of demand from consumer side.
The average spending by consumers has decreased drastically. With less demand there is bound to be less production and rising unemployment condition. Many industrial and corporate houses are churning their workforce.
Stocks markets and share trading are major indicators of economy trend. A rising economy is always well reflected on the bourses. Shares prices of many renowned companies have touched the rock bottom in the current economic turmoil. Indian stock exchange has also lost more than half of its value in a period of 8-9 months. Most of the world economies including India are declaring bail-out packages for doomed industries.
Several high-flying companies have come back to earth, battered and bruised. Big shots names in financial world have gone bankrupt or acquired by other companies or nationalized. The housing bubble has sent many private equity investors into tailspin. Things are definitely not rosy as can be witnessed from falling crude prices, reducing exports, low inflation and decreasing demand from consumers.