Recessions

Although recessions are part of the economic cycle, no two recessions are the same. Some are like a light breeze and others, like a devastating tornado. Read on to learn more about recessions.

What is a recession?

Before we look at some real-life recessions, we need to understand what it means.

Recessions have some general characteristics like lower unemployment, job cuts, and lower consumer and business spending. Generally, though, a recession occurs every eight to ten years.

Economic recession examples

There are many real-life examples of recessions. Some are global recessions and some a subject to one or a few specific countries. Each recession has its own explanation. Here, we will give you a quick summary or a key feature of the recession and hopefully you will be eager to read more about each of them.

Great Depression

In October 1929, Wall Street experienced a stock market crash that had a detrimental effect on almost every country in the world, including the UK. The impact of this crash was devastating on many different countries. In the Great Depression explanation, you will learn about its causes and its impacts, specifically on unemployment rates.

2008 Financial Crisis

The collapse of the investment bank Lehman Brothers in 2008 sent shockwaves throughout the global financial system. This recession carried on for five successive quarters and its impact is still felt today. In the 2008 Financial Crisis explanation, you will learn about the cause of the crisis, its impacts, and what we have learnt from it.

Oil Crisis (1973)

During the 70s, the world economy experienced two major oil crises, each caused for different reasons. These had a significant impact on the US economy and you can learn all about them in the Oil Crisis (1973) explanation!

Dot-com Bubble

The Dot-com Bubble crisis is a tale investors will tell warning of the dangers of new and unexplored business ventures. It occurred during the early 2000s when the internet was new and exciting. The Dot-com Bubble explanation will tell you all about how this bubble started and what caused it to pop.

Tulip Mania

Tulips are really pretty flowers, but how could flowers create a recession? That is what happened in 1634, the earliest record of a market bubble. In the Tulip Mania explanation, you will understand how this market bubble started, how it burst, and what we can learn from it.

Japan: deflation

Japan’s deflationary spiral is one that has been happening for more than 20 years. Despite government attempts, deflation in Japan still hasn't gone away. In the Japan Lost Decades explanation, you will learn about how deflation in Japan first occurred and its effects on the Japanese economy.

Argentine Great Depression

The Argentine Great Depression has a long timeline with many causes and consequences for the Argentine government. In the explanation about it, you will understand how it was caused, its impacts on the Argentine economy and if the economy will ever recover.

Crisis in Venezuela

The Crisis in Venezuela is an ongoing crisis since 2010. It has many devastating effects on Venezuelan citizens and has even sparked mass emigration. In the explanation about Crisis in Venezuela, you will learn all about how this crisis started, its economic impacts, and if there is hope for the Venezuelan economy.

Lebanese Economic Crisis

The Lebanese Economic Crisis started in 2019 and was brought about by the shortage of US dollars. This explanation will help you understand the cause of the crisis and its economic impact on Lebanon.

All the explanations of the various recessions are good to keep in mind for any upcoming exams!

Economic depression and recession

Although they have similar indicators and causes, there is a difference between depression and recession. This difference is seen in their severity, duration, and overall impact. Putting it into perspective, the US economy shrank 33% peak-to-trough during the Great Depression and unemployment peaked at 25%, whereas the Great Recession saw an unemployment rate of 10% and a 5% decline in GDP.

Economists define a recession as a significant decline in economic activity spread across the whole economy that lasts for a few months. This is accompanied by a visible reduction in real GDP, real income, employment, industrial production, and wholesale-to-retail sales. Recessions begin after economies reach a peak in their economic cycles.

A depression is often described as a severe version of a recession. In other words, there could be a fall in real GDP, which is very dramatic and lasts longer. However, it is not necessarily part of the economic cycle.

The table below explains the difference between the two terms in more depth.

Table 1. Difference between recession and depression.

The impact of economic recessions

There are many impacts of a recession on the different economic agents. Some impacts are:

• Unemployment. The effects of recessions are clearer for those in the workforce, who are at risk of losing their jobs. During recessions, there is usually a dramatic fall in the level of employment in a country. This is usually because firms tend to go bankrupt. This means that they have to lay off workers to cut costs, while only hiring a very limited number of new employees or workers.
• Fall in output and income. During a recession, firms -particularly the weaker ones- tend to be driven out of work. This is due to the fact that with recessions, firms are unable to make ends meet and maintain productivity. Furthermore, while more people are losing their jobs, those that remain might experience salary cuts. This means lower incomes, which make it difficult to maintain living standards, as living costs go up.
• Fall in the value/prices of assets. During a recession, there could be a drop in the price of houses, which is due to the negative impact that recessions have on employment and incomes, as people are less capable of paying rent or buying houses. Although this could be to the advantage of those looking to buy a home, for those who own them, this is a cost due to the wealth effect.
• Increased government borrowing. During the recession, the government tends to take up more debt than it normally would. A government does this to help cushion the shocks caused by the recession. With the money, the government increases spending in areas pertaining to welfare, such as housing benefits, employment benefits, and income support.