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What is the difference between Recession and Technical Recession?

Arfa Javaid

The Reserve Bank of India (RBI) in its latest monthly bulletin (November) has dedicated a chapter on the 'State of the economy' to highlight the key indicators of India’s economic health. 

The RBI has now started 'nowcasting' or in simpler terms 'the prediction of the present or the very near future of the state of the economy'. The first 'nowcast' has predicted that the country's economy will shrink by 8.6% in the second quarter (July, August, September) of the current Fiscal Year. This means that India has entered a 'technical recession' in the first half of the current FY for the first time in history. It is important to note that the GDP had shrunk by 23.9% in the first quarter (April, May, June). 

India's GDP growth contracts by 23.9%: Here's everything you need to know

The difference between the Recession and Technical Recession is as follows: 

S.No. Recession  Technical Recession
1. When a recessionary phase sustains for a considerable length of time, it is known as a recession.  A technical recession is when a country faces a back-to-back decline (for two consecutive quarters) in the GDP.
2. It covers a wide range of decline in economic activity, covering several economic aspects such as employment, household, corporate incomes and so forth.  It is mainly used to snapshot the trends in GDP. 
3. It is of long duration.  It is of short duration. 
4. It is not caused by a single off event.  It is often caused by a single off event. 

 

Important Terms

1- Recessionary Phase

When the GDP of any economy shrinks from one quarter to another, it is said to be in a recessionary phase.

2- Expansionary Phase

When the GDP of any economy rises from one quarter to another, it is said to be in an expansionary phase.

3- Business Cycle

When these two phases of an economy are combined, they constitute a business cycle. It can last anywhere between a year and a decade. 

4- Depressions

If recessions continue for years, they are termed as depressions. It was in the 1930s in the United States. 

5- GDP

Gross Domestic Product (GDP) is the final value of the goods and services with the geological limits of a nation during a predefined timeframe, typically a year.

Finance Minister Nirmala Sitharaman has expressed hope that India may project positive growth in the current quarter. Amid the ongoing COVID-19 pandemic, the key aspect for any economy to come out of recession is to control the spread of the highly contagious virus. 

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