London (Parliament Politics Magazine) – The term recession refers to a significant decrease in economy growth and activity. Typically, a recession can last for more than a few months. This definition depends on three different criteria that include depth, diffusion, and duration. If one factor doesn’t meet the other it will be hard to predict the nature of the recession.
For example, many countries had to face an economic decline due to the pandemic. Even though it hindered economic activity for a short while, it is still considered an extreme recession. The NBER doesn’t have any fixed formula that can determine the real cause or factors of a recession. No matter what the situation, it depends on how a country can handle the recession.
What Causes A Recession?
The recession period doesn’t come unexpectedly and countries can have a large number of warnings before it begins. However, the recession will usually begin from a shrinking GDP. It moves on to create an inverted yield curve. Moreover, it will slow down employment and many people may even lose their jobs. A country facing recession must plan things ideally to get out of it. It is necessary to consider some important factors before a recession is declared. Here are some of them:
- Higher interest rates
- The slowdown in the manufacturing processes
- The bubble burst for the assets
- A prominent slide in the real estate
- Credit issues
Due to the pandemic, everyone has a clear idea of what a recession period will look like. As a recession begins there will be a lower business activity that leads to losses. Moreover, the GDP will fall simultaneously and bring in a negative effect. The fluctuations in the economy are not easy to deal with. The cycle begins with other factors. Everything will begin with expansion, peak, recession, and then depression. The next time is trough and finally, recovery comes in.
How Long Will An Average Recession Last?
The average recession will probably last for 17 months. This is a clear indication of the average recession that happened in 1854. However, the recessions are becoming shorter since World War II. It is not surprising that the typical economic downward trend will last for about 10 months. Some recessions can last for a longer time. This is evident from the Great Recession of 2007-2009. The Great Recession lasted for about 18 months. If we discuss the COVID-19 recession, which lasted for around two months.
The duration of a recession depends on many factors that include market conditions. Next is to have an idea about the underlying cause and the response of the Government. If there is an underlying issue with the financial crisis things may turn out to be different. An asset bubble is challenging to handle though but the recession will be shorter in this condition.
Many countries could quickly overcome from economic crisis after the COVID-19 situation got better. There was a quick response coming from the Federal Reserve Board and Congress in general. The jumpstart in the economy was due to the efforts coming in from all sides.
It is not surprising why recessions turn out to be shorter as compared to economic expansions. The economic cycle will reflect a multi-year expansionary phase. This will typically last from four to five years. However, it will be followed by a contraction of fewer than 18 months.
Read More: Explainer: China’s Response If North Korea Collapse
Examples Of Past Recessions
Countries had to suffer 33 recessions since 1854. The first recession was recorded to last for about 18 months. If we talk about the oil crisis lasted from November 1973 to March 1975. This recession started with the controversy of the oil embargo. During this period the prices of petroleum saw a significant rise.
The savings and loan crisis is another report of recession. It lasted from July 1990 to March 1991. Unfortunately, it contributed to 1,000 falls in savings and loans. Next up was the internet bubble and the 9/11 Attacks.
This kind of recession lasted from March to November 2021. The classic ‘bubble burst’ saw the economy fall to a new level. However, it was later followed by a boom and bust in the ‘dot com’ economy. The 9/11 attacks didn’t see people suffering due to threats, but the economic condition was worse.
The Great Recession in 2008 started in December 2007 but ended in June 2009. No doubt, this recession was started by the subprime mortgage crisis. Unfortunately, it led to a collapse in the real estate market. Many investors had to face a huge loss. However, this wasn’t enough as it led to a bank crisis.