What is a recession? | CNBC Explains

What is a recession? | CNBC Explains

The last time there was a global
recession was in the late 2000s. The scale and timing of that Great Recession,
as it’s now known, varied from country to country. But on a global level, it was the worst financial
crisis since the Great Depression. Now a decade on, some people are worried the next
worldwide downturn may be just around the corner. While there is no universally accepted definition
of a recession, a technical recession is a decline of Gross Domestic Product, or
GDP, for two consecutive quarters. That means the value of
all the goods and services produced in a country went
down for six months straight. But the U.S. National Bureau
of Economic Research, which tracks the start and
finish of each U.S. recession, says a recession can begin
even earlier than that. The bureau measures and collects monthly
data for four other areas in addition to GDP: real income, employment,
manufacturing and retail. If these economic indicators
decline, it’s likely GDP will too. Now, a recession is not the same as stagnation,
that’s simply a period of low or zero growth. Nor is it a depression, which is a more
severe decline that lasts several years. Between 1960 and 2007, there were 122
recessions in 21 advanced economies. This may sound like a lot, but those economies were
really only in recession for around 10% of the time. Each recession is unique, but they
often share several characteristics. Recessions usually last about a year, and
a country’s GDP typically falls around 2%, although in some severe cases,
that decline can hit five percent. Investments, imports and industrial production normally
drop, and financial markets frequently face turmoil. All this can have a very negative
impact on a country’s population. Many people lose their jobs and
if they can’t afford their mortgages, they lose their homes
and house prices drop. They also have less money to
spend in shops and restaurants. That means businesses make less
money, and many go bankrupt. So is there a way to spot
a recession before it hits? Some economists focus on the number of people
employed in the manufacturing sector. In the world of manufacturing, orders
are often booked months in advance. When a factory or company gets fewer
orders, they’ll stop hiring new workers and potentially lay off some
existing workers too. This is a good sign other parts of
the economy will slow as well. Other experts examine the government bond
market, to see how willing investors are to lend money to governments
over a long period of time. When investors are concerned the economy might
be slowing down, they often sell their shares in public companies, and instead loan their
money to governments by buying bonds. That’s because bonds are usually
seen as a less risky investment. So those are the warning
signs of a recession. But what actually causes them? A healthy economy has lots
of money flowing through it. Company owners are putting money into their
business and hiring more people. Consumers are spending money
on their products and services. But if businesses and consumers
stop spending that money, less money flows through the
economy and growth begins to slow. A few factors can block
that flow of money. One of those is
high interest rates. When rates are high, people get more money
for putting their savings in a bank account, but they also end up having
to shell out more to get a loan. This can encourage people and businesses to save
more and borrow less, causing their spending to fall. Consumer confidence is a way to measure
people’s psychological approach to money. Economists track this closely. Low levels of consumer confidence means
people are worried about the economy, and that can cause them once again to hold on
to their money, rather than invest or spend it. A stock market crash for example
is one of the most sure-fire ways to shake up consumer
confidence across the board. But inflation may be
the biggest factor. It causes the prices of goods
and services to increase. If your paycheck isn’t growing alongside it, that
means you’ll have to cut back and buy fewer things. When this happens, people and businesses once
again tend to reduce spending and save more. And an economic slump that starts in one
country can spread beyond its borders, creating a domino effect. Let’s explore an example, the 1997 financial
crisis in East and Southeast Asia. It began in Thailand when the value of the
country’s currency, the Thai Baht, collapsed. Investors had lost
confidence in the country, and that lack of confidence
contaminated the rest of the region. Travelers face strict limits on the amount of
currency they can take out of the country. Other Asian currencies like the Malaysian ringgit
and Indonesian rupiah began to lose value too. Soon, investors around the world had become
reluctant to lend money to any developing country. More recently, the trade war between the U.S. and China
has also affected many other parts of the world. These two economic superpowers produce
and sell about 40% of all global output, and economists worry the knock-on
effects from their continued conflict could create the next major
international recession. Take Germany for instance. Its economy is largely
built upon exports. It makes money by building machinery and equipment
and sending it abroad to other countries like China. But if China anticipates less demand for its
products from the U.S. because of the trade war, it’s going to order less of that machinery
from Germany to make them. Germany is the biggest economy in the Eurozone,
which means if it goes into a recession, the rest of Europe will
likely suffer too. Some experts say that the financial crisis in
2008 ushered in a new era of deglobalisation. That means nation-states are less
focused on international trade, and more focused on their
domestic economic agendas. They say all this could lead
to more frequent recessions. And because of that, these experts
believe we should reconsider what constitutes economic
success in developed countries. Total debt burdens will rise. Populations will fall, as will the
productivity of our workers. And so it’s unrealistic, they say,
to think that growth rates can continue to rise in the way they did
in the second half of the 20th century. They suggest an alternative approach is to
focus on economic satisfaction and contentment, with a number like per
capita income growth. This essentially measures how much
money the average person makes. While the warning signs are there for another
global recession, geopolitical tensions and deglobalization makes it even more
difficult to predict the future. But one thing’s for sure, we’re living
in a new age of uncertainty.

100 thoughts on “What is a recession? | CNBC Explains

  • THis is why i like CNBC International
    's, its so well prepared and presented, that it leaves very narrow space for doubt and questioning !

  • All the Ignorant people are going to be crying homeless when the next economic meltdown comes

    Stay in school, kids! ?

    -Fun Time Abel

  • Its something the democratic party will hope happens while Trump is president. Their "experts" that said would happen once he got into office never happened.

  • Never thought I have to survive two recession in my short live untill know (who knows another 2/3/4 may be in store for me in the rest of my life). Anyway in 2008, my dream of becoming an animator/working in a high tech studio went kapoot with smoke. Then in 2018, my dream of following my passion about becoming a carsalesman went kapoot. Now hoping to save some money by doing hustling and start my small fast food shop in next few months. Hope my lats dream will not go kapoot.

  • For 4 years Ho Ching is holding me up due to her own profit n greediness, but her money is getting lesser n lesser, this is called recession.

  • When i was younger i used to see people with new cars,boats,big houses,eating out,jewelry ect. I used to say wow they a rich. Now im 38 and wiser. I see those people now and say damn they have a lot of debt.

  • lol MSNBC is pushing this recession so hard. They’ll literally destroy the world economy to defeat a president they can’t control.

  • The poor continue to get poorer in a recession and when the economic 'upturn' happens the rich can invest to become much richer. Hence gross economic inequality.

  • Don't be surprised if USA goes to war in the next financial crisis. Easiest way to employ and keep their unemployment rate low enough to get back on healthy feet again.
    Iran next?

  • Only demorats will used the federal bank to bring down trump dirty pp ! They don’t care about America only their hunger for power

  • This is only side of story… Germany can invest to other countries like India, South America, Southeast Asia. so many options…

  • @5:08: You sort of simplified the economic system between China and Germany here. You should have also said that if China suffers large number of layoffs, chances are German companies will have less Chinese businesses to work with. Lesser partners also mean that some more people face layoffs or unemployment due to business restructuring or bankruptcies

  • @2:50: What about the top and the bottom open ends? Is the top the local government and the bottom being international trading?

  • GDP is easily faked . The world is already been in recession but there is no transparency in economic statistics for each country such that we do not know what is the Truth. Remember, no politician is honest.

  • Recessin is when Trump decides to do government shutdown and build a wall instead of investing in a higher welfare or subsidy for working class

  • What is a pessimist in the middle of greatest economy ever?
    A real Debbie Downer… look how high up we are.. we're going to fall you know?
    Maybe so, maybe not.
    stfu loser

  • Recessions start when disproportionate amount of money is held by the rich, they don't spend more, they just invest…meanwhile the rest of the population who have no money underspend making the investments the rich own worthless…and then everyone loses.

    Solution….control inequality.

  • I have much better understanding of a recession after watching this video than having spent 4 years in college majoring in Economics…

  • It is most definitely not "for sure" that we're living in a new age of uncertainty Uncertainty has increased in the last year or two, this is not an 'age'. It will presumably go down again after this recession (if it happens) passes. The video overall was average, but this line is typical of lazy journalism, just repeating an oft-repeated catchphrase rather than making sure what you're saying to (as of this viewing) 250,000 people is correct.

  • I'm debating on taking out a loan from my 401k for $40,000. That way i can have cash when the recession happens. Any thoughts? Loan has zero interest and i pay myself back biweekly. Im sure 40k goes far in a recession

  • Open up your eyes. Look at interest rates. Banks can't attract people and offer enough despite low interests coz people don't want to buy what they don't need. Those times are gone.
    Look at Apple. General electric. Siemens. Nokia. All have to beg people to buy their product while not long ago they would beg people to wait for production.
    The buyer seller relation broken.
    Nike Adidas Reebok Fila selling shoes at buy one get one free on their official websites.
    People that are sleeping need to open up their eyes. Recession is already amongst us and billions of people around us want more security more freedom more peace and not luxury brand bullshit and weapons.
    This shift u can't stop. It is here and it will stay and all unrelated production is going to be a huge loss.
    Do you know China recycles 500 million tons of material every year used in electronic business. Why ?
    Wake up… After a few months you will see brands going off the billboard reducing their staff and so on

  • Hi Victor, taking your advice and leaving a comment here.
    Follow-up to check if the SG team can join the world's first NERF Action Xperience arena launch?

  • Capitalism the best system in the world that fails 10 percent of the time. Isn't it wonderful. How many people would drive a car if it crashed 10 percent of the time. I say we can do better.

  • I didn't understand one thing, can someone please explain?

    How does the exports from China to the US effects the imports of china from Germany? As the exports and imports here mentioned are completely different, how can one affect others?

    Even if somehow it affects the imports of China from Germany, how does only that reason can cause a recession in Germany?

  • Well explained. Also no matter which political party is ruling the country, Recession is normal phenomenon or we can say economic cycle in capitalist society which occurs after every decade where it last for 6 to 12 months and when it's prolonged for period of 3 to 4 years it's called Depression. Their is also benefit of Recession as it helps to reduce the inflation. Recession reduces the purchasing power of the people , so when people have less money to purchase they have less demand for the products and services which in turn impact the GDP ie Gross domestic product ( the values of the goods and services produced within the country. Some of the factors which reduce the purchasing power of the people are high interest rate, increase in unemployment due to cost cutting in the companies, reduced salary and wages. These days the companies are more focused in cost cutting by firing their employees / man power instead of focusing on Investing activities as a result when people don't have the jobs they will spend on their basic necessities only rather than the luxuries.

  • Every Day is work Day for everybody. Its just a matter of paychecks. To think outside the box are actually more fun. To go blind stearing at THE Numbers in wall street are just pointless. They just dont get THE concept of culture,history,preserving. Both Fabio & Jennifer Lopez are right in track age is just number on a Vine bottle. Its pointless to eat grape seeds to stimulate THE taste buds.

  • Mistake at 3:18. The see saw animation shows the opposite to what you are saying. Deposits decrease and spending increases accordingly to the animation.

  • Should be stopped before it's happened else large number of people all over the world will faced bad financial situation ever and the main reason is trade wars and other wars…
    Probably 2008 recession is nothing like economists predicted about 2020

  • Upcoming Recession and 22 trillion dollars in debt. That's where big shit hits the fan. It's all Congress's Fault.

  • i am not an expert in economy or whatsoever, but I do believe that economic recession sometimes have to do with technology. When there is a sudden change in technology that everyone will embrace it at such a rapid pace, that is when there is a company that will go bankrupt, along with other associated suppliers, and there is also a company that rise. Also there should be some governmental regulation regarding big companies.

  • In Pakistan we are having same issue. Interest rates are high , revolving of currency is paused. We are undoubtedly in a recession at the moment

  • Can’t really have a good video without stupid political propaganda from CNBC, the trade war explanation is obviously bias

  • We have had our latest recession already: from October 2018 to December 2019.
    Next recession stop: Late 2020 to Mid-2021.
    Kindly go about your own/private/personal business for now, everyone! 🙂

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