What is a recession?

by | Aug 9, 2023 | Future Planning

It’s a term that I know I’ve heard thrown around fairly regularly since the start of the year.

Every second person appearing on television or social media is hypothesizing that we’re heading for one, with some even arguing that we’re already in one.

But I wonder how many people actually know what this means?

Someone describing a ‘recession’ may refer to the following general terms:

  • Generally we spend, invest and borrow less willingly
  • Slow down in economic activity & decline in demand for goods & services
  • Increase in the Cash rate & Quantitative tightening (QT) used by central banks (Reserve Bank of Australia) to decrease the amount of money supply in the economy
  • Rising unemployment (increased unemployment rate) – businesses begin to layoff staff due to rising costs
  • Declining real incomes (after inflation) – the inflation rate being higher than our payrises
  • Decline in economic output & gross domestic product (GDP)

Technically – a recession can be defined by two consecutive quarters of negative growth in real GDP.

A prolonged and more severe recession is also referred to as a ‘Depression’.

Jayden Allison CFP®
MFinPlan, BCom (Eco&Fin), Dip. FS (FP)
Financial Planner

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