Definition of recession and official ambiguity

Summary

In economics, a recession is described as a business-cycle contraction marked by a broad decline in economic activity. It is often associated with a widespread drop in spending (an adverse demand shock), though it can be triggered by various events such as financial crises, trade shocks, supply shocks, bursting asset bubbles, or major disasters like pandemics. A central complication is that there is no single official, universally accepted definition of a recession. The International Monetary Fund notes the lack of an official definition, while different authorities use different criteria. In the United States, the NBER is commonly treated as the authority for recession start and end dates, defining recessions as significant declines in economic activity spread across the economy and lasting more than a few months. In contrast, the U.S. Bureau of Economic Analysis emphasizes that the popular “two consecutive quarters of negative GDP growth” rule is not an official designation, and that recession dating is the responsibility of expert committees at the NBER. Other regions adopt their own approaches, such as the European Union’s use of GDP alongside multiple indicators, and the UK/Canada’s reliance on two consecutive quarters of negative GDP growth.

Key Points

• 1

  A recession is generally characterized as a broad contraction in economic activity, often driven by a widespread decline in spending.

• 2

  There is no single official global definition; different institutions use different criteria for what counts as a recession and when it begins/ends.

• 3

  In the US, the NBER is widely used for recession dating, while the BEA cautions that the “two negative GDP quarters” rule is not an official designation.

• 4

  Different jurisdictions (e.g., EU, UK, Canada) adopt different operational definitions, often combining GDP measures with other indicators.