What is Recession ?

As promised in my previous blog, here is a short note on Recession.

Recession is defined as a significant decline in activity spread across the economy, lasting longer than a few months (for the purpose of definition, this state should exist for atleast 2 consecutive quarters). The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP).

To know more about GDP,

What is Gross Domestic Product (GDP) ?


Recession is a an unpleasant part of the business cycle. A recession generally lasts from six to 18 months and in this period, the central bank reduces the interest rates to stimulate the economy by offering cheap rates at which to borrow money and so that businesses can offer compeeling values for their products and remain profitable.

What is Stagflation ?

In the recent past you would have heard of everyone talking of inflation and the effects it has on the economy, stock markets, interest rates etc.

Learn more about inflation at

What is Inflation ?

As we speak about inflation, it is equally important that one be aware of Stagflation which is a condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.

Stagflation occurs when the economy isn't growing but prices are, which is not a good situation for a country to be in. This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., stagnation increased the inflationary effects.

In the last week reports that came out of the US, Inflation rose alarmingly at 0.8% while the there was increase in unemployment also. Thus, there is a growing feeling that the Fed may not decrease the interest rates as was widely expected as decreasing the interest rates while could spur economic growth, it could also fan inflation which is not something that the central bank would like to have.

Thus it is quite possible that the current phase in the US could be termed as Stagflation which could lead to recession which we will try and understand in subsequent blogs.