- Economic Recession: General Information
- The reasons
- Sphere of distribution
- Recession in Russia
- Recession and stagnation
The life cycle of the business activity of any enterprise or economy of an entire state includes several stages. First comes the rise, then the work reaches its peak. Sooner or later there is a recession, which can end in complete decline. The third stage preceding the crisis is decisive. This stage is called a recession. Let's talk about it in the article.
Economic Recession: General Information
From the recession there are two ways out. The recession of the economy can lead, as mentioned above, to the complete decline of the country, with all the ensuing consequences. The decline in activity can also be used by the government of the state to search for solutions to current problems that will allow a new growth cycle to be reached.
The state of the economy, which often comes after the increase in all indicators and has the non-critical nature of the decline in production, is called a recession. During this period, there is a deterioration in key indicators that affect macroeconomic indicators. The fact that the economy is in recession, indicate:
- The decline in GDP.
- Reducing incomes of the population.
- Deterioration in investment attractiveness.
- Reduced production volumes of industrial enterprises.
- Reduced consumer activity.
An economy in recession means that an unfavorable period has arrived for the country. In the course of it, enterprises reduce production turnovers, produce less goods, citizens get reduced wages, and therefore start saving.
An economy in a recession may be due to:
- The collapse in prices for gas and oil. Their decline leads to economic recession in the states where these resources act as a key strategic product.
- Active growth in the cost of raw materials. It can be triggered by increased consumer demand and excitement.
- The issuance of an unacceptable number of mortgage loans with a high percentage of risk.
- Reduced production volumes in all industries.
- Reducing wages and other incomes of citizens. This entails, respectively, a deterioration in the purchasing power of the population.
What happens in the economy after the recession process? The consequence of a recession inevitably becomes depressed or crisis. Under all economic laws, to avoid such a state will not succeed. However, thanks to the work of analysts and other specialists, the process can be significantly smoothed out. The work of higher state minds will reduce the negative effect of the recession, reduce the scale of the consequences.
Sphere of distribution
If in any country the economy is in recession, then this can lead to negative consequences not only within this state. Currently, there is active international cooperation. The economic activities of one country may have a close relationship with certain sectors in other states. Thus, a decline in one subject will inevitably lead to a worsening of the situation in another. This, in turn, can lead to a global global crisis. So, in particular, according to a number of analysts, the EU economy is in deep recession. In the framework of international relations in a downturn, there is a decrease in indices on the exchange. As a result, the national currency of the country, in the economy of which deterioration is noted, depreciates. This, in turn, causes the likelihood of non-repayment of external debt. When the economy is in recession, mainly businesses operating in the country suffer. They face the need to reduce production volumes due to inefficient consumption of goods. Late payments for delivered products lead to the emergence of arrears in taxes and wages. As a result, enterprises that are not ready for a crisis are recognized insolvent (bankrupt). The impact of the recession is acutely felt by direct consumers of goods. The population receives lower salaries, people become insolvent, cannot fulfill credit obligations, fall into debt pits.
When the economy is in recession, experts analyze the reasons for this situation. On its basis, the type of decline is determined:
- Unplanned Such a recession occurs under the influence of such negative factors as the unpredictable decline in world prices for strategic resources (oil, gas), the outbreak of war. As a result of these processes in the state budget there is a deficit, gross indicators begin to decline rapidly. An unplanned recession is considered by many experts to be the most dangerous. This is due to the inability to timely predict such a recession and, accordingly, to respond to it.
- A recession that has a psychological or political nature. The reasons for this recession are the distrust of foreign investors, local producers and the private consumer. Such a recession is manifested in a decrease in purchasing power, a decrease in the volume of financial receipts, a fall in the rates of bonds, stocks, vouchers and other securities. Such a recession can be easily overcome. The exit of the economy from recession in this case is carried out using the methods of financial and psychological impact.
- Recession arising on the background of a decrease in macroeconomic indicators and an increase in external debt. The consequences of such a recession are capital outflows, a decrease in the value of shares, a long-term protracted depression.
A downturn in the economy is recognized if the decline in production volumes and the deterioration of gross indicators occur within more than six months and begins to take a protracted nature. The duration of such a period will directly depend on the reasons for such a situation. For example, if there is a recession of a political or psychological nature, then the duration of a recession can be reduced by regaining the confidence of the population and businessmen. To do this, apply loyal measures in the areas of credit and social security. The situation is different with an unplanned recession. As mentioned above, it is quite difficult to predict such a decline. It depends on negative factors of a global nature. The state in which the decline in production is noted cannot influence them. In such a situation, the only thing analysts can do is to develop measures aimed at maximizing the negative effects.
Recession in Russia
The state of the domestic economy directly depends on the indicators of the oil and gas market. The rapid fall in energy prices entails a number of negative consequences for the country. First of all, the amount of revenue that goes to the budget fund from the sale of strategic products decreases. Stock indexes begin to fall, followed by a weakening of the ruble. The decline in production causes a decrease in incomes of citizens. Worsening consumer activity of the population. With a simultaneous decrease in citizens' incomes, prices for services and goods are rising. The economic downturn in the country is also due to external factors - the sanctions of several countries of the world. Since 2015, relations with various international corporations have been severed, which has jeopardized the functioning and development of large enterprises, which has a very negative effect on the GDP indicator. As experts noted earlier, this condition could last until 2017. However, today the situation may change if the agreement on freezing oil production begins to take effect.
Recession and stagnation
These two concepts have significant differences. The recession is characterized as a moderate recession. At the same time, stagnation is characterized by a complete halt of key strategic sectors. In this period:
- Trading and manufacturing enterprises stop working.
- There is massive unemployment.
- Income decreases, and the quality of life of the population deteriorates.
During a recession, the process of reformatting the country's economic regime is launched. Specialists develop and implement plans for the further development and re-equipment of the main branches of the national economy. At the same time, stagnation does not provide for any positive dynamics and adaptation to the new reality. As a result, the country is living out the last stage of its cycle, a deep economic crisis begins.