In the modern world, economic issues come under the close attention of society. After all, the well-being of each individual or legal entity depends on the state of the organization of the national economy. Therefore, even without being economists, many people are interested in what stagnation and recession are.

There are also many other categories worth considering. Each person will be able to understand their differences and navigate the economic reality surrounding them.

What is stagnation?

To understand the difference between recession and stagnation, you should consider each of these economic categories in more detail. Each of them has its own characteristics.

Stagnation is the phase of the economic cycle in which there is a slight increase in GDP (from 0 to 3%). This creates unemployment. The standard of living of the population is declining. There are no significant changes in the structure of economic organization.

At the same time, scientific developments and new technologies are not being introduced, and modern industries are not developing. During stagnation, there is no significant decline or growth.

Types of stagnation

There are several types of stagnation. If it is accompanied by a significant depreciation of the money supply in circulation (inflation), this condition is called stagflation. Often, the lack of GDP growth is not characterized by such processes. Therefore, it is necessary to distinguish between concepts such as recession, stagnation and stagflation.

There are two main types of phase of slight economic growth (stagnation). Stagnation can be transitional or monopolistic. The first type arises as a result of a change in management organization (for example, from an administrative system to a transitional system).

Stagnation of the second type appears due to the high concentration of monopoly unions in sectors of the national economy. The type of stagnation depends on the reasons that caused it. They influence the ways out of such a situation.

Reasons for stagnation

When studying the question of what stagnation and recession are in the economy, one should understand the reasons for their occurrence. This allows you to understand the main differences. Stagnation can be caused by a number of factors.

These include an inappropriate system of political organization and management style, as well as an increase in bureaucracy. At the same time, the nature of production becomes extensive. The lack of innovation leads to significant wear and tear of equipment. Regulatory standards have also not been established.

To get out of such a situation will require significant efforts on the part of the state government. Often, outside help from other countries is needed. An action plan to increase economic growth must take into account all the features of organizing economic activity.

What is a recession?

Delving deeper into the topic of what stagnation and recession are, we should consider the main characteristics and stages of recession. It also has a number of features. A recession is a stage of the economic cycle in which there is a decline in GDP and other indicators.

It happens slowly. The decline lasts for several months. At the same time, there is significant unemployment and the standard of living of the population is deteriorating. Investment injections are stopped. Without targeted action from the government, the process will be gradual and lengthy. Production is declining, fixed assets are wearing out.

Causes and consequences of recession

Many internal and external factors lead to the development of such a situation. When wondering what stagnation and recession are, a person must understand their development mechanism. If GDP not only does not grow, but also declines steadily, the economy may be entering a recession.

The reason for this may be a sharp increase in production in the previous period. Having exhausted its capabilities, the economic system will inevitably come to the need to reduce production. Sometimes this situation is caused by external factors, wars, international conflicts.

An increase in prices for raw materials on the world market can also reduce GDP growth. A recession can be caused by uncertain, weak investments or a high level of distrust of buyers and capital owners in the industry and production products. If the government does not take any action to improve the situation, an economic depression and crisis will occur.

Types of recession

Focusing on the concepts of stagnation, inflation, recession, one cannot help but pay attention to the variety of the latter. Its types are distinguished depending on the type of chart.

A V-shaped recession is characterized by a sharp decline in output. However, it does not reach the level of depression. The fall is characterized by one point. Then the indicators return to their previous level.

A U-shaped recession differs from the first type by a long-term unsatisfactory state of the economy. The type of graph in which the GDP level curve forms a W has two critical points. After the main fall there is a slight improvement. Then the numbers drop again. Then the graph reaches its previous level.

A type L recession has a sharp fall and a long recovery period. Many factors influence the type of graph. It strongly depends on the set of measures that the country's leadership is taking to increase production rates.

The difference between recession and stagnation

There is a significant difference between the considered states of economic development. Stagnation and recession, the differences of which emerge from their definitions, should be understood somewhat more deeply. The recession, although characterized by more negative manifestations, indicates the beginning of the search for a new economic system. It adapts to currently existing conditions. This process begins with a reduction in production.

Stagnation does not imply any development. The economy is mired in closed, unpromising production. Therefore, although both processes are considered negative, a recession is still better. It precedes development.

Stagnation does not imply any improvement. In this case, no development is observed. Manufacturing simply unwisely consumes existing resources to the point of exhaustion. That is why this state of the economy is dangerous and irrational.

What does recession and stagnation indicate?

To deeply study the question of what stagnation and recession are, we should also note the general probability of the state of the economy. If the government does not take any action to improve the situation, a phase of depression and crisis begins. Therefore, both of these processes cannot be left to chance.

The government is obliged to clearly monitor the main indicators of the country's economy and immediately take a set of actions to increase production levels. Also, both of these states of the economic cycle indicate mistakes made on the part of the governing bodies (for example, incorrect budget allocation).

Existing constraints require immediate identification and elimination. In this case, all details of the organization of economic activities of the state are taken into account. Only a comprehensive solution to pressing problems and competent production planning gives a positive result. Scientific developments and progress should not be hampered by any factors. This should be monitored by the relevant control authorities.

A recession is a rapid decline in GDP volumes, a crisis in the banking system and key producers. But, despite all the negativity, it is during this period that the national economy is most susceptible to positive changes that make it possible to avoid a deep crisis and emerge from a recession with minimal losses.

 

Recession (lat. recessus- retreat) - a slowdown in growth or a constant decline in the volume of gross domestic product (GDP) for six months or more, which usually leads to the beginning of a period of economic depression. As a rule, it is characterized by a significant drop in stock indices, rising unemployment and other signs of a cyclical crisis.

Causes and consequences

Depending on the type and level of economic development, there are five main reasons when a recession occurs:

• Changes in external market conditions. This is especially true if the main source of national income is the export of raw materials such as gas or oil. As world prices fall, the budget deficit begins to be compensated by external borrowing, increasing tax rates and reducing social benefits. All this together can trigger crisis processes.
• Predominance of imports over exports. If the majority of goods sold on the domestic market are imported, a drop in production is inevitable if appropriate protective measures are not taken.
• Slow pace of modernization. An unfavorable investment climate leads to an outflow of capital and a slowdown in the modernization of fixed assets and, as a consequence, a loss of competitiveness, rising unemployment and a decline in living standards.
• Problems in key sectors. A striking example is the mortgage crisis in the United States in 2008, which caused a negative chain reaction not only within the country, but throughout the world.
• Force majeure, such as military actions or natural disasters (earthquakes, floods, etc.).

Consequences:

• Fall in production volumes. As a consequence, there is a decrease in the need for labor and an increase in the unemployment rate. Consumption is declining, the economy is increasingly moving into the shadow sector, which further intensifies the decline in production and the service sector.
• Growth of credit debt. The fall in living standards leads to non-payments by the population, rising interest rates and more stringent conditions for issuing new loans to both individuals and legal entities.
• Investment recession. Lending to new industrial and technical areas is declining, competitiveness is falling, causing a decline in export volumes and a fall in the stock price of leading industrial enterprises.
• Inflation, as a natural result of previous negative factors. The balance of the money supply and the level of social benefits usually begin to be maintained through external borrowing, which increases external debt, which in turn is refinanced by new loans.
• Decline in GDP. If urgent measures are not taken, the decline could turn into a full-blown crisis.

The consequences may not occur in the order listed or occur simultaneously. For example, the inflation rate may increase slightly (2-3%), which, if the economy is strong enough, will not cause an immediate negative effect. When several signs actively appear, then we can with a high probability talk about a recession.

Its beginning may be officially announced. In the United States, such decisions are the responsibility of the National Bureau of Economic Research, and a recession is considered to be a strong decline in business activity, GDP and major stock indices for at least three to four months in a row. In the UK, a similar body is the National Statistical Office, which considers a decline in GDP for two consecutive quarters to be the beginning of a recession.

Types of recession

According to the influence of external factors, economic theory distinguishes three main types:

1. Unplanned. The reason is the occurrence of force majeure external circumstances, such as military actions, natural disasters or an unexpected drop in energy prices, if their exports constitute a significant part of income. This type is the most dangerous, since it is practically impossible to predict, and it is very difficult to select adequate measures for exit.
2. Political or psychological recession. In simple words, this is an increased distrust of the existing monetary policy of most businesses, end consumers, domestic and foreign investors. To overcome, solutions that will restore confidence in the economic and political system are sufficient, for example, lowering interest rates or reducing the influence of the state on the domestic market.
3. Growth of external debt. The result is a decline in stock prices and major stock indices, an outflow of capital abroad and a decrease in investment activity. It is just as dangerous as unplanned, and can last for a long time without reacting to any external and internal changes;

Ways to overcome

There is no consensus on how to overcome the recession and the subsequent crisis - the set of reasons that led to the fall is too diverse, and there cannot be universal recommendations. Among the most used measures are the reduction of discount rates of the Central Bank, stimulation of exports and government support for the banking system and large manufacturers.

A deeper analysis reveals the positive aspects of such a stage of the economic cycle as recession, that this, unlike stagnation, means the economy is ready for change, even by compressing individual segments and making unpopular decisions.

Historical examples

• USA 1937-1938 The reduction in budget expenditures to support the economy after the Great Depression led to the second wave of the crisis and in 1939 the index of industrial production did not exceed 90% of the 1932 indicators, and unemployment continued to remain at 17%. Stable growth of the American economy began only after the outbreak of World War II, in the wake of a sharp increase in military orders;
• Financial crisis of 2007-2008 A clear example of how a recession in the world's largest economy can lead to a collapse of the entire world economy. The beginning was the crisis of mortgage-backed securities in the United States and as a result, stock prices of American companies fell by an average of 40% in the United States and up to 50% on European stock exchanges.
• Referendum on the UK's exit from the EU (Brexit). The International Monetary Fund (IMF) forecasts that the UK could see GDP fall by 5.6% by 2019, with unemployment above 6%, and could be followed by a protracted recession.

I prepared a series of short articles about difficult times in the economy especially for the banking dictionary Bankov.ru. It seems to me that they can well be considered as a single material on what a “bad state” of the economy is - with historical and theoretical excursions, definitions and descriptions of the subtle differences between recession, depression, stagnation and stagflation.

In fact, what word to call this or that state of the economy is a controversial issue. For example, the libertarian economist Murray Rothbard, the creator of the concept of anarcho-capitalism, wrote back in 1969 that recession, depression, recession and even “slowdown” are the same thing, simply called different words for ideological reasons. This may be true, but in modern mainstream economics there is still a difference between these concepts.

So, in order.

Stagnation– long-term stagnation in the economy. It is expressed in low (or zero) GDP growth rates, high unemployment, and a decline in the standard of living of the population. During the period of stagnation, the structure of the economy remains unchanged, there are no significant changes associated with scientific and technological progress, and the economy does not accept innovations. If stagnation is accompanied by a high level of inflation (which is not obligatory), it is called stagflation.

There are no exact numerical values ​​characterizing periods of economic growth and stagnation, but traditionally, low economic growth rates, signaling the onset of stagnation, are understood as GDP growth of less than 2–3% per year for several years. It is important to distinguish stagnation from an economic crisis – a sharp shock reduction in GDP. Stagnation is precisely the absence of growth or almost imperceptible growth, but not a strong decline.

Stagflation– economic stagnation accompanied by high inflation. Historically, stagnation was characterized by a fall in prices (deflation), or at least their stability, and a high level of inflation was characteristic of a period of economic growth. Stagnation is characterized by a high level of unemployment, a decrease in demand for goods and services from the population and a decrease in the purchasing and investment activity of businesses. Accordingly, in order to maintain sales levels, entrepreneurs had to stabilize or reduce prices. During economic growth, the purchasing power of the population (demand) grows faster than supply from entrepreneurs (since increasing production requires significant time and investment), so prices rise. However, in the 1960s and early 1970s, for the first time, the economies of developed countries experienced both low growth rates and high inflation. The term “stagflation” was first used on November 17, 1965, in a speech by Ian MacLeod in the British House of Commons.

Stagflation is not characteristic of a normally functioning market economy and is one way or another caused by external reasons. These include irrational actions of governments that stimulate the economy through inflationary methods; the actions of monopolies that raise prices to maintain profits while reducing effective demand for their products; as well as natural and man-made disasters that cause a decrease in supply against the backdrop of continuing or growing demand.

Recession- a phase of the economic cycle characterized by a weak but steady deterioration in economic indicators, primarily a decline in GDP. Also, during a recession, unemployment increases, investment in fixed capital decreases, and the general standard of living of the population drops slightly, especially for those who receive wages or income from business (unlike recipients of government payments and rentiers, whose situation does not worsen).

In some countries, various organizations officially report the onset of a recession under certain circumstances. For example, in the United States, the Business Cycle Committee of the National Bureau of Economic Research defines a recession as “a significant decline in business activity across the economy over several months, usually reflected in deterioration in real GDP, real income, employment, industrial production, and retail trade.” In the UK, a recession is recorded by the Office for National Statistics when GDP declines for two consecutive quarters.

Depression(economic) - a strong decline in real GDP for several years in a row. There is no precise definition of the concept “strong,” but many economists consider a fall in a country’s real GDP of more than 10% for a period of more than two years as a clear sign of depression. In other words, a depression is an extremely severe and prolonged recession. On the other hand, it is necessary to distinguish depression from crisis, because crisis is a short-term phenomenon. By the way, you can easily take a break from all this at free-slots-club.com in order to recharge with new strength and re-enter the game filled with energy.

The term “depression” was actively used by economists, politicians and journalists throughout the 19th and first half of the 20th centuries. Since the mid-20th century, the overly negative meaning of this word, combined with relatively fresh memories of the Great Depression of the 1930s in the United States, led to its being washed out of use and replaced with more neutral terms “recession”, “stagnation”, “slowdown”, etc. However, events associated first with the collapse of the socialist economy, and later with the crisis in Greece, revived the interest of the public and economists in this concept.

“What is an economic recession?” — this question may be of interest to every person interested in the situation in the country. Our article will tell you what a recession in the economy is, what this phenomenon brings to the life of the state and whether it is worth fearing.

What does the word "recession" mean? The meaning of the word from the point of view of economists and ordinary people

The economy of a country, just like that of an ordinary company, develops cyclically: there are periods of revival, growth, slowdown and recession. Economists use the term “recession” to describe a period when the rate of development of a country’s economy slows down.

A recession does not mean that key economic indicators have stopped growing - just that their growth rate has been declining for 2 quarters in a row. There is a decline in business activity, enterprises begin to produce fewer products, due to which their profits decrease. The population begins to experience slight difficulties with work, due to which demand decreases.

This phase of the business cycle usually occurs after an economic recovery. And quite often after it a crisis or depression begins. But competent measures by the state can prevent such consequences and normalize the economic situation in the country.

Don't know your rights?

What does stagnation mean?

Stagnation is a complete stop of the economy. Production and trade practically stop, unemployment becomes widespread, wages and the standard of living of the population fall.

The stagnation of production can last for a long time until the state takes action and begins to bring the country's economy out of this state. At a time when the country is experiencing stagnation, life becomes very difficult.

Recession in Russia - can it be avoided and is it necessary to do so?

It is impossible to avoid a period of economic downturn, and the emergence of a recession is quite natural. During this period, the effectiveness of the state and the functioning of the financial system is checked.

If the right measures are taken during a recession to overcome it, the decline in economic growth rates will be almost unnoticeable. But if the government uses ineffective measures, the consequences could be serious, even leading to an economic crisis.

Types of recession in the economy

Economists divide economic recession into 3 types.

1. An unplanned recession occurs due to unexpected changes. This could be the start of hostilities, a fall in world prices for gas and oil, and much more. As a result, a state budget deficit forms and the level of GDP begins to fall. According to economists, such a recession is dangerous for the country, since it is impossible to predict and it is difficult to select measures to overcome it.
2. A psychological or political recession occurs due to mistrust of consumers, businessmen and investors. Purchasing activity decreases, the volume of investments decreases, and securities prices fall. But this type of recession is easy to overcome - it is enough to regain the confidence of the country's population. This can be done by lowering interest rates or using various psychological methods.
3. A recession may also occur due to rising external debts. As a result, stock prices fall and there is an outflow of funds. Such a recession is also dangerous, as it can last for many years.

Signs of recession in the economy

You can determine that a recession has begun in a country based on a number of signs:

• the unemployment rate in the country began to increase slightly (gradually);
• there is a decline in production, but enterprises continue to operate and provide the population with the necessary products;
• stock market indices began to fall;
• inflation rates are increasing;
• there is an outflow of capital abroad.

But all of the above phenomena do not have critical indicators. For example, the inflation rate may increase by only 2-3%. When all of the above signs manifest themselves actively, they say that a depression has begun in the country.

What triggers a recession in the economy and what can this phenomenon bring to the country's economy?

A recession can start for many reasons. Economists name 4 main ones that most seriously affect the situation in the country and can lead to a recession.

1. Changing market conditions. WFP growth may slow due to military activities, falling oil prices and much more. For example, the main source of replenishment of the Russian budget is the sale of oil. If the price of a barrel falls, the budget deficit immediately begins to appear.
2. Decline in national production. The predominance of imported goods in the country leads to a decline in the activity of domestic enterprises. Consumers do not see the point in buying Russian goods if they can buy imported ones for the same price. As a result, production rates fall, leading to a recession.
3. Decrease in people's income. This leads to a drop in demand and has a detrimental effect on the economic situation.
4. Fall in investment. If the population with money stops trusting the state or finds more profitable and reliable ways to invest abroad, a recession may begin. To prevent this from happening, the state must constantly monitor the conditions provided and improve them - then investors will invest money only in the national economy.

The business activity of any enterprise or the economy of an entire state includes several stages. First there is a rise, then the work reaches its peak. Sooner or later, a decline occurs, which may end in complete decline. The third stage, preceding the crisis, is predetermining. This stage is called a recession. Let's talk about it in the article.

general information

There are two ways out of the recession. An economic recession can lead, as mentioned above, to the complete decline of the country with all the ensuing consequences. A decline in activity can also be used by the state government to find solutions to pressing problems that will allow it to enter a new growth cycle.

Concept

The state of the economy, which often occurs after all indicators have increased and has a non-critical decline in production, is called a recession. During this period, there has been a deterioration in key indicators that influence macro indicators. The fact that the economy is in recession is evidenced by:

1. Decrease in GDP indicators.
2. Decrease in income of the population.
3. Deterioration of investment attractiveness.
4. Decrease in production volumes of industrial enterprises.
5. Decrease in consumer activity.

An economy in recession means that the country has entered an unfavorable period. During it, enterprises reduce production speeds, produce fewer goods, citizens receive reduced wages, which is why they begin to save.

Causes

An economy in recession may be due to:

1. Collapse in gas and oil prices. Their decline leads to economic decline in states where these resources act as a key strategic product.
2. Active growth in the cost of raw materials. It can be triggered by increased consumer demand and excitement.
3. Issuing an unacceptable number of high-risk mortgages.
4. Decrease in production volumes in all industries.
5. Reductions in salaries and other incomes of citizens. This entails, accordingly, a deterioration in the population.

What happens in the economy after the recession process? The consequence of a recession inevitably becomes a depressive state or a crisis. According to all economic laws, it will not be possible to avoid such a state. However, thanks to the work of analysts and other specialists, the process can be significantly smoothed out. The work of the highest government minds will reduce the negative effect of the recession and reduce the scale of the consequences.

Scope of distribution

If the economy of a country is in recession, this can lead to negative consequences not only within that state. There is currently active international cooperation. The economic activities of one country may have a close connection with certain sectors in other countries. Thus, a decline in one subject will inevitably lead to a deterioration in the situation in another. This, in turn, could lead to a global world crisis. Thus, in particular, according to a number of analysts, the EU economy is in a deep recession. Within the framework of international relations, during the recession there has been a decline in stock exchange indices. As a result, the national currency of a country whose economy is experiencing deterioration depreciates. This, in turn, raises the possibility of default on external debt. When the economy is in recession, it is mainly the businesses operating in the country that suffer. They are faced with the need to reduce production volumes due to inefficient consumption of goods. Late payments for delivered products lead to tax and salary arrears. As a result, enterprises that are not prepared for the crisis are declared insolvent (bankrupt). The impact of the recession is also acutely felt by direct consumers of goods. The population receives lower salaries, people become insolvent, cannot fulfill loan obligations, and fall into debt traps.

Classification

When the economy is in recession, experts analyze the reasons for this situation. Based on this, the type of recession is determined:

Period

A recession in the economy is recognized if a decrease in production volumes and a deterioration in gross indicators occurs for more than six months and begins to take a protracted nature. The duration of such a period will directly depend on the reasons that caused this situation. For example, if there is a recession of a political or psychological nature, then the duration of the recession can be reduced by regaining the trust of the population and businessmen. To achieve this, loyal measures are applied in the areas of lending 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 global factors. A state experiencing a decline in production cannot influence them. In such a situation, the only thing analysts can do is to develop measures aimed at maximally smoothing out the negative effects.

Recession in Russia

The state of the domestic economy directly depends on the performance 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. begin to fall, followed by a weakening of the ruble. The decline in production causes a decrease in citizens' incomes. Consumer activity of the population is deteriorating. With a simultaneous decrease in citizens' incomes, prices for services and goods rise. The economic decline in the country is also due to external factors - sanctions from a number of countries around the world. Since 2015, relations with various international corporations have been severed, which has jeopardized the functioning and development of large enterprises and had an extremely negative impact on the GDP indicator. As experts noted earlier, this situation could last until 2017. However, today the situation may change if an agreement on freezing oil production volumes comes into effect.

Recession and stagnation

These two concepts have significant differences. A recession is characterized as a moderate economic downturn. At the same time, stagnation is characterized by a complete stop of key strategic sectors. In this period:

Conclusion

During a recession, the process of reformatting the country's economic regime begins. Specialists develop and implement plans for the further development and re-equipment of the main sectors 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 reaches the last stage of its cycle, and a deep economic crisis begins.