In general, a recession is a decline in economic growth. However, before economists will declare the economy is in recession, there are certain factors that need to exist. These factors are in debate, which has resulted in two different definitions of a recession.

Many economists believe that a recession is when the Gross Domestic Product (GDP) declines in a country over two or more consecutive quarters. The GDP reflects the total costs of completed goods and services during a certain period within a country’s borders. The standard calculation of the GDP is adding the expenditures of consumers, investments, and government, plus export values minus import values.

The private organization National Bureau of Economic Research promotes the second definition of a recession: A recession is indicated by a major decrease in various economic areas, including the GDP, production, sales, employment, and income, over a number of months.

There usually are indicators that a country is headed for recession. The economy slows down and shows little growth over a period of time. Typically, consumers and businesses spend less and unemployment rises. Inflation can also contribute to a recession. When the costs of goods and services go up, consumers and businesses spend less. Because there is less spending, the GDP declines.

As a country experiences slow economic growth, it usually tries to introduce initiatives to stimulate the economy, often referred to as “economic stimulus packages.” These may include tax rebates and incentives for both consumers and businesses. The hope is that both consumers and businesses will spend this money on goods and services and investments and help increase economic activity so that the GDP can improve. 

If a recession is not addressed, it can lead to a depression, which is a more severe recession. Economists generally believe a country is in a depression when its GDP drops by 10 percent or more.