Recession in Economy : Causes, Impact And What Symptoms Arise

Quoting from the Big Indonesian Dictionary, understanding of an recession in economy or depression is defined as sluggishness in trading, industry and business activity that seems to collapse. Or there is a decrease in demand and a reduction in trading activity for commodities and services. That is, when this condition is detected, it is due to the economic downturn. If these economic conditions are viewed from a macroeconomic perspective, it indicates a picture of a financial setback.

Where (GDP) or gross domestic product has decreased or when conditions of real economic growth are negative and occur for 2 quarters or more in 1 year. This economic downturn can result in a simultaneous decline in all economic activities including employment, business and industry. Recessions are also often associated with falling prices (deflation) and rising prices (inflation) in a process known as stagflation.

Causes of Recession in Economy

A state of decline that continues to occur will lead to economic depression and even the collapse of the economy. There are six factors that cause a recession in a country’s economy, these are complex also interrelated, including :

Due to shocks in the economy

One factor that causes a downturn in the economy of a nation is a shock to the economy of a country. Unforeseen events also resulted in widespread economic disruption. This will not only lead to high death rates but will result in a downturn in the economy.

Losing Consumer Trust

If a consumer is afraid of economic conditions, they will usually reduce spending and save on spending the money they have. This is what makes purchasing power behavior decrease, so that the economy becomes disrupted. It should be noted that almost 71% of GDP is highly dependent on the level of consumer spending. This, means that if the behavior of purchasing power decreases, it will affect the entire economy which slows down drastically.

High Interest Rates

High interest rates can result in high consumer goods prices. Such as houses, cars, and building materials. Service and production companies can also reduce capital spending and plan for business growth again, because costs are too high. This is why the economy is shrinking and retreating.

Economic Deflation

When deflation occurs, the price of consumptive products and assets has decreased, this is due to the large number of requests that do not exist. When demand decreases, prices also decrease as a solution so that consumers’ purchasing power can increase. So that people will delay buying, waiting for prices to lower, causes the spiral pyramid to run down and finally economic activity slows causing unemployment and poverty to increase.

Asset Bubble

When an asset bubble occurs, the price spike of basic consumer goods, real estate will rise rapidly. Because consumers believe that prices could have gone up before the recession. But when the bubble bursts, people will lose what they had on paper, raises concerns. Thus, business people and companies will withdraw spending which results in a recession in the economy.

Technological Changes

Technology can contribute to a downturn in the economy. The existence of new inventions can increase productivity and help the country’s economy in the long run. There is however the possibility of a short term adjustment period for the technology. The existence of this industrial revolution in fact made almost all professions obsolete.

This triggers a state of economic depression to experience difficult times. And currently many economists are worried about AI and Robot technology that can trigger depression because many workers have lost their businesses and livelihoods.

Recession Symptoms or Indicators

Of course there are five indicators to measure whether a country going into a recession or not. What are they ? Check out in points below:

1. Economic Growth Figures are Slowing

One indicator that will show whether the economy is experiencing a downturn is growth. We all know that developments on the economic side provide benchmarks to determine whether the economic cycle is good or bad. So, if a nation has a good economy, its growth will be positive. The opposite also applies, if the growth of the economic side is bad, then the country’s economic growth will decrease.

2. High Inflation or Deflation

Symptoms of a recession that indicate a country is experiencing an economic downturn is if there is an excessive increase in inflation and deflation. Inflation is indeed beneficial for economic interests, However if it is excessive, it is feared that it could complicate the economic conditions of the community. Not only inflation, the factor of high deflation tends to indicate an economic downturn.

3. Import of Unbalanced Goods

Export and import activities are needed with the aim of establishing economic cooperation with neighboring countries. The existence of export and import activities causes the need for a product in each country to be fulfilled properly. However, in order to maintain economic stability, do not make the level of import activity higher than export activity. This will risk causing a budget deficit, causing national income to decline.

4. Unemployment Surge

Human resources or labor is a factor in the production process that affects the economy. If a nation cannot create jobs for local people, then the spike in worker unemployment will be high. This triggers various criminal acts, meaning that having a high number of worker unemployment can explain that the nation has experienced a slowdown in economic growth in a short time.

5. Production with Unbalanced Consumption

The balance of production with consumption is a basis for growth on the economic side. Imbalance will be able to cause problems to the circulation in the economy. These are the characteristics of a recession on the economic side that require attention. Try not to have an excess production amount from the consumption level, so that it can reduce the buildup of production goods stocks.

Impact of Recession in Economy

After knowing what are the causal factors and indicators of a country’s recession, of course many people want to know what the impact will be if there is a country’s economic downturn. This is the explanation:

1. Increased layoffs

This is the impact of the recession that was quite felt during the economic crisis. Termination of employment will occur everywhere. This resulted in an economic slowdown and even make many companies close and not operate. And even worse resulted in a decrease in company sales and income.

2. Missing Entry Instrument

Dismissal of workers (PHK), it will also result in lost monthly income. Their finances may decline, because portfolio income or individual assets are lost as a result of unstable economic conditions due to a recession. If the economic condition is shaken, the community will not disburse incoming income to spend on things that are not essential.

3. Decrease in individual purchasing power

One impact that will result from a decline in the economic side is that people’s purchasing power is weak. This has happened to industry players, especially MSMEs. When purchasing power is weak, this is because they prefer to save money rather than spend. Although deflation sometimes benefits society. However, this incident can damage the state of the economy causing a spike in unemployment in the city.

Steps to Overcome Recession in Economy

When there is a recession in the economy, can it be overcome ? There are various solutions that can be used to overcome economic risk. One way to anticipate this is to increase public consumption. If the level of consumption drops, the country’s consumption level can be encouraged to avoid a recession.

The level of consumption is the main recovery object that needs attention in anticipating an economic downturn. Various instruments such as social assistance to strategies to restore business confidence need to be improved. If a country wants to get out of recession, then consumption and money circulation are the keys.