How is a 'recession' defined?

A recession is defined as a phase of temporary economic decline, typically characterized by two consecutive quarters of negative GDP growth. This definition highlights the key feature of a recession, which is a significant downturn in economic activity, reflected in the decline of the gross domestic product (GDP). During a recession, various economic indicators such as employment, consumer spending, and business investment tend to decline, indicating a slowdown in economic performance.

The focus on two quarters is significant because it establishes a benchmark for measuring economic decline. By requiring two successive quarters of negative growth, it ensures that the downturn is not merely a short-term fluctuation but rather a recognized period of sustained economic contraction.

Understanding this definition is crucial for analyzing economic cycles and their impact on various sectors. It emphasizes the importance of monitoring GDP as a critical indicator of economic health and helps in making informed decisions related to economic policies and business strategies.