Difference between Recession and Economy

Numerous market participants have an effect on the entire set of activities that constitute what is known as an economy, which consists of the production and consumption of goods and services. These can affect a wide range of industries in an economy, for better or for worse.

Increases in employment and investment, decreases in poverty and government debt, and an increase in business activity are all signs of a healthy economy. In contrast, a faltering economy is marked by rising unemployment rates, expanding public debt, falling asset prices, and shrinking disposable income. We may speak of a recession when there is a large reduction in the national income.

What is Recession?

The slowdown in economic activity might have been caused by a number of factors, including a supply shock, a financial crisis, the collapse of an economic bubble, or a pandemic. An economic recession is characterized by a decline in economic activity and production that worsens with time.

Recessions are relatively rare, but their effects on a given economy vary with the depth of the decline and the duration of the downturn. If GDP has fallen for two consecutive quarters, this might indicate a recession.

Recessions have the following effects on economies −

  • High rates of unemployment − Expenditure cuts by firms in response to the slowing economy have contributed to rising unemployment rates.

  • Low salaries − Some businesses prefer to pay their staff less during a recession in order to save money and make it through the tough economic times.

  • Due to a decline in corporate, employee, and asset tax revenue, the government may have to increase its borrowing to continue with administrative functions. The total amount of debt may increase as a result of this.

  • Drop in asset prices as consumer and investor faith in the economy declines When people lose faith in the economy, asset prices decline.

A government may help its economy recover from a recession by taking actions like increasing government spending and decreasing taxes in the economic sectors that have been hit the hardest. On the other hand, various policymakers will take various approaches to these problems.

What is Economy?

Businesses, governments, and regular citizens all contribute to the economy by creating, distributing, trading, and consuming goods and services. The legal and political structures that govern the creation and distribution of wealth in a society have a major impact on the economy's overall health.

It is possible to utilize economic indicators such as the Gross Domestic Product, Retail Sales, Industrial Production, the Consumer Price Index, and Employment Data to demonstrate the health of a certain economic sector.

Various kinds of economies

  • Traditional economy − Production of goods and services in a traditional economy, for instance, can be guided by the community's shared values and beliefs. They have trust in the rites and practices of their ancestors, therefore they keep doing them.

  • Capitalist economy − Capitalism refers to an economic system in which production of goods and services is guided mostly by market demand.

  • Command economy − A command economy is one in which the government oversees and directs all economic activity. The government sets the standards for production, including what and how much to produce, as well as the prices and the amount of goods available.

  • Mixed economy − These are features of the command economy and the free market in a mixed economy. While the government has considerable influence over the economy, it does not have a stranglehold on it.

Even while economic disruptions occur often, their severity might vary. One example is the lasting damage done to an economy by a recession. Education, employment, and economic opportunities are all negatively impacted, as is the overall slowdown in economic activity and the decline in commercial initiatives. When the economy is bad, people have less time for fun, which hurts industries like travel and entertainment.

Differences − Recession and Economy

The following table highlights how Recession is different from Economy −

Characteristics Recession Economy


Economists talk about recessions when there is a significant drop in economic activity due to factors such a supply shock, financial crisis, the bursting of an economic bubble, or a pandemic.

An economy is one in which businesses, governments, individuals, and other groups engage in the production, distribution, trade, and consumption of products and services.


The decline in GDP is the standard economic indicator for a downturn.

The economic performance of a certain industry may be measured with the use of corresponding indicators.

Gross domestic product, retail sales, industrial production, consumer price index, and employment rates are all examples of these types of economic indicators. These metrics are used to evaluate the health of an economy.


Economists talk about recessions when there is a significant drop in economic activity due to factors such a supply shock, financial crisis, the bursting of an economic bubble, or a pandemic. The opposite of "society" is "economy," which refers to an area where businesses, governments, individuals, and other entities produce, distribute, trade, and consume commodities and services.

Recessions are bad for economies because they lead to a drop in consumer spending, a rise in unemployment, a depreciation of assets, increased government borrowing, and rising debt.