Atos Consulting Look Out | Economic Downturn

Concept

An economic downturn relates to a period of reduced economic activity, also known as a business cycle contraction. In economics, the term ‘recession’ describes the reduction of a country’s GDP for at least two successive quarters of a year. Today’s downturn began with a slowdown in the US housing market in 2006. Homeowners, many of whom could only barely afford their mortgage payments when interest rates were low, began to default on their mortgages. Default rates on sub-prime loans—high-risk loans to clients with poor or no credit histories—rose to record levels.
The impact of these defaults was felt across the financial system, reslting in the collapse of financial institutions all over the world and the general widespread economic crisis we are currently facing.

Trajectory

Although no completely reliable predictors exist, a significant stock market drop often precedes the beginning of a recession. Dramatic changes in unemployment rates also often indicate a recession. This has certainly been true of the current economic crisis.
Strategies for moving an economy out of a recession vary depending on which economic school policymakers follow. While Keynesian economists may advocate deficit spending by government is to spark economic growth, supply-side economists may suggest tax cuts to promote business capital investment. Laissez-faire economists may simply recommend that government is let natural market forces play themselves out.

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