A recession is a dramatic fall in the economy of a nation. To be called a recession, this decrease must last for at least six months but could be longer. This is marked by a fall in Gross Domestic Product (GDP), product sales, income, levels of employment and rates of manufacture. Many people believe that defining a recession relies on GDP alone. However, whether a country is in recession or not can only be judged by analyzing all of the above factors as a whole.
1. Recessions and GDP
It’s a commonly held misconception that a fall in GDP is the only sure indicator that a recession is underway. However, looking at GDP alone is not a reliable way of diagnosing an economies fall because the economic situation can already be on the downturn before the Gross Domestic Product reports are produced. For this reason, levels of manufacture, unemployment, income, and product sales are used alongside GDP as predictors of recession.