What is Technical recession?

Context

• The contraction of Q2 is crucial because it implies India that has entered a “technical recession” in the first half of 2020-21— for the first time in its history.

Key information

What is a recessionary phase?

• When the GDP contracts from one quarter to another, the economy is said to be in a recessionary phase.
• When a recessionary phase sustains for long enough, it is called a recession.

When it said to be a recession?

• The NBER’s Business Cycle Dating Committee typically looks at various variables such as employment, consumption etc apart from GDP growth to arrive at a decision.
• It also looks at the “depth, diffusion, and duration” of decline in economic activity to determine whether an economy is in a recession or not.
• According to NBER, if the situation persist for some quarter than we can call it recession.

What is a technical recession?

• In technical terms, a recession is considered to be in progress when real GDP has declined for at least two consecutive quarters.

When it converts into depression?

• If recession continues for years, then it is referred as “depressions”.
• But a depression is quite rare, the last one was during the 1930s in the US.