Economic Recession: This is the Definition, Causes, Impact, and Characteristics.

Economic Recession: This is the Definition, Causes, Impact, and Characteristics.

economic-recession-definition-causes-impact-characteristics

When you hear the term economic recession, the thing that immediately comes to people's minds is, of course, related to financial problems and poor financial conditions.

Yes, the economic recession is a term that is a scourge in almost all countries in the world, including Indonesia.

Not only affecting financial conditions, but this phenomenon also has an impact on the investment sector, taxes, and the quality of life of the general public.

Therefore, an understanding of what an economic recession is is important to study, including in terms of its causes, effects, and characteristics.

In Indonesia itself, this economic phenomenon has occurred and has been successfully overcome. So, what is meant by the economic recession?

For more details, see the following review of what a recession is, its causes, effects, characteristics, and examples of its occurrence in Indonesia.

What is an Economic Recession

An economic recession or recession is a period or period when there is a decline in the wheels of the economy. This is marked by a decline in GDP or gross domestic product for 2 quarters at once.

The occurrence of a recession is also indicated by an increase in the number of unemployed, a contraction in manufacturing income, and a decrease in retail product sales in the long term.

So, a recession can be interpreted as a contraction or a major slowdown in economic activity in a country.

In addition, another definition of a recession is a significant decline in economic activity that lasts for several months.

If economic growth within a certain period reaches 0% or even minus, it can also be called a recession.

If left unchecked for a long time, this economic phenomenon can lead to economic bankruptcy and chaos in society.

Causes of the Economic Recession

There are various causes of a recession, ranging from things related to the economy, technology, or other special phenomena. To be clear, here are some common causes of the recession.

Economic Shock

The existence of economic shocks as a trigger for this recession had occurred in various countries in the world due to the Coronavirus pandemic.

This problem also has an impact on the Indonesian economy. A sign of an economic shock is a weakened purchasing power due to the community or company experiencing financial problems.

High-Interest Rate

The second trigger is high-interest rates. High-interest rates can keep currency exchange rates from losing to foreign exchange rates.

However, this can also burden the debtor and trigger bad credit which if it lasts for a long time can cause the banking industry to collapse.

Lost Investor Trust

Investment is an important aspect of economic development.

Therefore, a conducive investment climate is needed so that investor confidence is always high, including in terms of security or strategic projects.

If investor confidence has been lost, economic development becomes more sluggish and weakens production.

Indirectly, this also increases the number of unemployed and weakens people's purchasing power. As a result, the country's economy is more at risk of falling into a recession.

Inflation

When the price of products and services increases over a certain period, it is known as inflation.

This inflation triggers a decline in consumer purchasing power to maintain economic conditions. As a result, production levels decline and can increase the risk of unemployment, poverty, and recession.

Deflation

On the other hand, deflation is a condition in which the price of a product decreases.

Although this was able to increase people's purchasing power, persistent deflation was able to make consumers delay their shopping activities and wait for the lowest nominal value.

This of course can make purchasing power even weaker and reduce the production activity of the company.

Asset Bubble

The last cause is the asset bubble that occurs when people buy types of property, such as houses, land, or shares with a high nominal value.

This activity is generally carried out because of speculation that the price will continue to increase in the future. As a result, inflation will occur but only specifically on property objects.

Impact of the Economic Recession

The impact of the economic recession will certainly be felt by all groups, be it the government, companies, or workers. The following is the impact of slowing economic growth on these parties.

Impact on Government

The stagnating economic growth has reduced state revenues from taxes and non-taxes.

The reason is that people's incomes are reduced and property prices have fallen, which makes the amount of VAT that goes into the state treasury low.

The high unemployment rate also requires the government to open up job opportunities. If the level of state income is not able to anticipate it, like it or not, the government must apply for loans from foreign banks.

Impact on Company

The impact of a recession on a company or business is to increase the risk factor for bankruptcy. When many businesses go out of business, income will experience a drastic decline and trigger layoffs.

This of course makes people's purchasing power weaken and the level of demand will decrease significantly.

Impact on Workers

For workers, a stalled economy can increase the threat of lost income due to layoffs.

Without income, workers will find it difficult to meet their needs. This can disrupt the stability of the investment and social climate in a country.

Characteristics of an Economic Recession

Observing whether an economic recession is occurring in a country is not difficult to do. The reason is, that various characteristics are indicative of this phenomenon, including:

Import Rate is Higher Than Export

The first indication of a recession is that imports are higher or disproportionate to exports.

When countries often bring in needs from other countries, the risk of a budget deficit becomes very high. This can lead to a decrease in national income and hamper economic growth.

Weakening Economic Growth for 2 Quarters at Once

Weak economic growth in a row for up to 2 quarters is a sign of a country's financial condition experiencing a slump.

This condition is generally caused by investment, import-export activities, consumption, expenditure, and unstable national income.

There is an Imbalance between Consumption and Production

When the level of production far exceeds the amount of consumption, it means that there is a problem with product stockpiling. Conversely, if the level of consumption is greater than the amount of production, large-scale import activity will occur.

This incident could trigger an increase in expenses and a decrease in company profits, triggering a slowdown in economic growth.

Number of Jobs Reduced

The fewer the number of job vacancies, the automatically the number of unemployed will increase. Not only shows a weak economic condition, but this situation can also trigger criminal acts that damage the security and social order in society. If left unchecked, investor confidence to invest will be lost.

How to Overcome a Recession

An economic recession can be overcome in several ways, including:

Increase Shopping Rate

The first way to overcome a recession is to increase purchasing power and carry out massive shopping activities. Even so, make sure to keep an eye on your financial condition and don't spend until it gets out of control.

Restore Investor Confidence

Apart from boosting purchasing power, the economy can be regenerated by formulating policies and strategic projects that can improve the investment climate. That way, investors will be more interested in investing and reinvesting.

Increasing MSME Activities

The last way to overcome the recession can be done by increasing the activity of MSMEs.

Even though they are an affected sector, MSMEs have better resilience than large companies when economic growth stagnates.

The reason is that the scope of operations is smaller and not prone to big losses.

Therefore, financial assistance from this sector needs to be increased so that production activities can continue to run.

Prepare for Recession Risk with Savings and Investments


That is a complete explanation of what is meant by a recession, its causes, effects, characteristics, and how to overcome it.

As a phenomenon that can occur at any time and greatly affect financially, people need to find ways to deal with it. One way is to prepare an emergency fund and invest so that personal financial conditions are maintained and can encourage the country's economy.

Post a Comment for "Economic Recession: This is the Definition, Causes, Impact, and Characteristics."