Recession & its implications

a recession refers to a period of slowing economic activity. since there are various measures of economic activity and diverse views on 'slowing', there are alternative definitions of recession. what are the popular definitions? a common and somewhat-rigid definition is a period of two consecutive quarters of negative gross domestic product. gdp refers to the aggregate of goods and services produced or simply the output of an economy. the national bureau of economic research, the us official arbiter of recession, has a less mechanical approach. it looks at a bunch of indicators like industrial production, retail sales, employment and business performance and identifies the start and end of a recession. the international monetary fund has a thumb-rule for global recession: when global output (the gdps of all countries put together) grows at less than 2.5 per cent annually. are rigid definitions better? mechanical definitions like the two quarters rule appear to be more convenient than subjective prognoses like the nber's. but they have their pitfalls. as examples, economists point to situations where a sharp dip in output in one quarter may be followed by mild growth in the next, and a plunge again in the third. that ought to count as a recession but won't under a rigid rule. again, if growth in an economy like india falls to, say, 4 per cent, way below the average in the past few years, it should warrant the recession label but won't pass the two-quarter test. what causes a recession? despite reams of theoretical literature on the subject, economists are still somewhat vague about what really causes a recession. a common whipping boy is the nation's central bank which is often blamed for tipping the balance through excessive monetary tightening, resulting in prohibitive interest rates for firms and consumers who borrow to spend. this results in demand contraction and recession. other theories attribute recession to a dip in the technology cycle. introduction of new technologies like computers and their growing use leads to a rise in incomes of firms who manufacture these and this leads to an economy-wide boom. when the momentum peters out, recession ensues. are we in the middle of a global recession? going by the nber, the bellwether of the global economy, the us has been in a recession since march this year. it has, incidentally, clocked just one quarter's decline. the imf also seems certain that global economic growth will dip below 2.5 per cent this year. how long does a recession last? historically, recessions in the us have averaged about 11 months and slightly longer in europe. that's cause for cheer if the recession did, indeed, start in march 2001. however, doomsdayers who believe that the recession has mimicked the fortunes of the computer industry believe that technology-led recessions last longer. data on average recession spans isn't available for india. can india escape a global recession? economies with relatively weak trade and investment links with the rest of the world are thought to be immune to global fluctuations. however, with increasing globalisation, it is difficult to find one which is isolated enough to escape. india is less dependent on others than most asian economies. it exports about 10 per cent of its gdp compared to 40 per cent by singapore and taiwan, which are seeing negative growth rates. however, while it might escape the worst brunt of the global cycle, problems like a poor fiscal situation and absence of infrastructure investment will mean growth this year will dip considerably below the past few years' average of 6 per cent.

Recession & its implications

<img src=/photo.cms?msid=871988625 align=left>A RECESSION refers to a period of slowing economic activity. Since there are various measures of economic activity and diverse views on ‘slowing’, there are alternative definitions of recession.

More from our Partners

Popular Categories

Hot on Web

In Case you missed it

Top Searched Companies

Latest News

Download ET APP

Follow us on

become a member