Causes Of Recession

Recession is defined as a drop or decrease in the economy of a country that is manifested in lower Gross Domestic Products, higher inflation, higher rates of unemployment and bankruptcy. All these factors are the result of recession and also the causes of recession.

Most academics argue that there is no particular cause or group of cause that can be held responsible for recession. With every recession, a different cause can be held responsible. However, one thing that every academic agrees on is that the result of a recession is the same.

Case studies highlight the cyclic causes of recession in an economy. The global recession experienced in late 2008 was primarily due to the bankruptcy of the major financial institutions of Europe. This led to a global panic that percolated to the individual economies of almost every country in the world and resulted in the stock market crash of that period. The stock markets crash following any recession because of the panic among investors. As more and more investors start pulling out of the market, prices fall and therefore, the stock market as a whole starts crumbling. With the fall in the market, companies lost liquidity that resulted in job cuts and more bankruptcies. The GDP of individual economies took a hit and so did the inflation increase. These in turn further brought the stock markets down. Thankfully, the experience of individual countries in previous global stock market crashes of 2000, 1987 and 1929 helped many economies survive the recent 2008 crash.

Sometimes a stock market crash results in a recession as in the case of the Honk Kong, 2000 crash. Causes of recession are many but sometimes they are unknown with respect to the stock market. The market in Hong Kong towards the end of October experienced a 45% decline that lead to a global fall in market values. Academics and researchers have yet to put a finger on a particular cause for this recession.