Understanding Recessions: Definitions, Causes, Indicators

Definition of recession across institutions

There is no single official, universally accepted definition of a recession across all institutions. In general, a recession is understood as a business-cycle contraction marked by a broad decline in economic activity, often linked to a widespread drop in spending (an adverse demand shock). However, different organizations operationalize this concept using different thresholds and indicators, such as GDP behavior, employment and income measures, and the breadth of declines across sectors. For example, the International Monetary Fund notes that there is no official definition of a recession. In the United States, the National Bureau of Economic Research (NBER) is widely treated as the authority for recession dating and defines recessions as a significant decline in economic activity spread across the economy, lasting more than a few months, typically visible in real GDP, real income, employment, industrial production, and wholesale-retail sales; it also describes recessions as moving from a peak to a trough. The European Union uses a similar, GDP-inclusive approach with multiple macroeconomic indicators. By contrast, the United Kingdom and Canada commonly define recession as negative GDP growth for two consecutive quarters, while the OECD uses a more output-gap-based criterion (at least two years with specified minimum cumulative and annual output-gap thresholds).

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Recession attributes and breadth of decline

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