TECHNICAL RECESSION

Subject : Economics

Context : Latest RBI bulletin projects contraction for a second consecutive quarter, which means the economy is in a ‘technical recession’.

Concept :

• In its latest monthly bulletin, the Reserve Bank of India has dedicated a chapter on the “State of the economy”. The idea is to provide a monthly snapshot of some of the key indicators of India’s economic health.
• And the very first “nowcast” predicts that India’s economy will contract by 8.6% in the second quarter (July, August, September) of the current financial year.
• It implies India that has entered a “technical recession” in the first half of 2020-21 for the first time in its history.
• When the overall output of goods and services increases from one quarter (or month) to another, the economy is said to be in an expansionary phase. And when the GDP contracts from one quarter to another, the economy is said to be in a recessionary phase.
• When a recessionary phase sustains for long enough, it is called a recession. In other words, when the GDP contracts for a long enough period, the economy is said to be in a recession.

Technical Recession :

• It is often considered a recession to be in progress when real GDP has declined for at least two consecutive quarters.
• That is how real quarterly GDP has come to be accepted as a measure of economic activity and a “benchmark” for ascertaining a “technical recession”