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Differentiate between recession and slowdown
Both terms recession and slowdown affects the economy negatively. Cause, manner and degree in which they affect the economy differ.
Recession
It is the term used in general economic activity. In macroeconomics, recession is recognized when there is negative GDP growth rate after two consecutive quarters. Recession is the part of the economic cycle of expansion and contraction.
Recession indicators are as follows −
- Gross Domestic product (negative GDP indicates sharp decline in productivity)
- Real income (purchasing power depends on real income, if real income decrease then purchasing power decreases)
- Manufacturing (exports/imports and trade surplus/deficits with other countries
- strength health of manufacturing sector)
- Wholesale/retail (measures market performance of goods)
- Employment (if unemployment is more than 6% of total is problematic and it is lagging indicator)
Recession causes are as follows −
- Real factors (structural shifts and external economic conditions triggers recession)
- Financial/nominal factors (interest rates and relationship between goods)
- Psychological factors
Recession effects
It causes monetary and fiscal effects. Decrease/fall in short term interest rates, tightens credit availability, consumption rates are reduced, inflation rate goes down, more job cuts.
Slowdown
Economic growth reduces or at slow date, this situation can be termed as slowdown. In slowdown there will be decline in gross domestic product when compared to other quarters. Effects of a slowdown are not much harsh compared to recession. Some of the effects are low production rates and increase in unemployment
Example
In quarter 1 (Q1), GDP increased to 1.5% from the previous quarter and later decreased to 1% and 0.8% in the next two quarters. Now, we can say the economy is slowing down.
Differences
The major differences between recession and slow down are as follows −
| Sr.No | Recession | Slow down |
|---|---|---|
| 1 | Gross Domestic Product (GDP) declined for two successive quarters. | Economic growth at reduced or slow rate. |
| 2 | Affects economic stability for longer periods. | Affects economic stability for shorter periods. |
| 3 | Low production and high unemployment. | Effects particular sectors and unemployment. |
| 4 | Worldwide impact. | Only some/specific countries have an impact. |
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