Finance
How do recessions happen?
A recession happens when economic activity falls for a sustained period — people spend less, businesses earn less, and unemployment rises. It can be triggered by shocks, bursting bubbles, or falling confidence, feeding a downward spiral until recovery begins.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how recessions works.
Step by step
- 1It's a sustained, broad decline in economic activity.
- 2Spending drops, businesses cut back, and jobs are lost.
- 3Triggers include shocks, bubbles bursting, or lost confidence.
- 4Central banks and governments act to soften and end them.
Frequently asked questions
- How do recessions happen?
- Falling spending and confidence cause businesses to cut back and lay off workers, deepening the slowdown.
- What's the difference between a recession and a depression?
- A recession is a significant downturn; a depression is far deeper and longer-lasting.
- How do recessions end?
- Confidence and spending recover, often helped by lower interest rates and government stimulus.