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What Is a Recession?
March 30, 2026 · 1 min read
A recession is a significant decline in economic activity that lasts for an extended period — typically defined as two consecutive quarters of negative GDP growth.
What Happens During a Recession
- Businesses earn less revenue and may cut costs or lay off workers
- Unemployment rises
- Consumer spending drops
- Corporate earnings decline, which typically affects stock prices
- Central banks often respond by lowering interest rates
Common Causes
- Tightening monetary policy: Interest rate increases can slow the economy too much
- External shocks: Oil crises, pandemics, or geopolitical disruptions
- Asset bubbles bursting: When overvalued markets (housing, tech) correct sharply
- Loss of confidence: When businesses and consumers pull back spending simultaneously
Historical Context
Recessions are a normal part of economic cycles. The U.S. has experienced roughly a dozen recessions since World War II, varying in severity from mild slowdowns to severe crises like 2008.
Recovery
Every recession in modern history has eventually been followed by a recovery. The duration and strength of recoveries vary, but economic contraction has never been permanent.
Markets often begin recovering before the economy does — sometimes while conditions still feel difficult.