Economic Recession

 In this article, we will talk about economic recession and its causes.

 Simply put, economic stagnation means a significant decline in the economic activity of a country, as industrial production and sales decline, wages decrease, and employment operations decrease. This appears in the decline in the country’s gross domestic product for two consecutive quarters, for example, in 2020, the world suffered from an economic recession described as the worst since the Great Depression in  1929, as the American economy contracted during the first quarter of 2020 by 5.1%, and in the second quarter of the same year it fell by a record 31.2%, and by April 2020, the American economy lost more than 20 million jobs, and the unemployment rate rose to 14.7%, due to the economic stagnation reasons  Notably many.

 1- inflation

 Which means a continuous rise in product prices, as happened during the global epidemic and disruption of supply and shipping chains, and sometimes inflation occurs due to the increase in consumer demand and spending on products in the market quickly before prices increase more.  Demand for products and companies lose what drives them to reduce production and lay off employees, unemployment rises and the economy may enter a recession.

2- High interest rates

For example, most of the recessions in the United States since the Great Depression followed raising interest rates. When inflation occurs, countries try, through their central banks, to reduce the prices of goods and products by raising interest rates and increasing the cost of lending to reduce liquidity in the market, so the demand for products decreases, the production of companies declines and their profits decrease.  High interest may make companies not offer to invest in new projects.

 3- The collapse of confidence in investment and the economy

Wars or the spread of epidemics and natural disasters may cause a loss of confidence in the country's economy, investments stop, and therefore employment operations decrease, unemployment rises, consumer spending decreases, production rates decline and stagnation appears.

4- The collapse of the financial markets

The stock market may enter a downward trend for a long period, with which share prices drop dramatically, causing investors negative feelings and pessimism about the future of companies, and some may refrain from investing, which may eventually lead to an economic recession.

5- Bursting asset bubbles

In 2008, the mortgage bubble crisis appeared when American banks expanded their mortgage lending operations without sufficient guarantees to repay to achieve the largest amount of profits through the interest of loans, which led to many defaults on payments and the banks were unable to finance companies and individuals, investment decreased, and the demand for products in the market went bankrupt.  Some companies and the crisis spread to the rest of the world because of the financial institutions' connection with the American economy, which led to a recession that threatened the entire global economy.
 Therefore, everyone hopes that economic recession will not occur because of its harmful effects on the economy.

Finally, I hope you will benefit from this article