Difference Between Recession and Slowdown

During tough economic conditions, it is the norm for people to think that the economy is headed to a recession. While the term economic slowdown is rarely used when this happens, well, most times it’s an economic slowdown taking place.  Although these two negatively affect the economy, the causes, degree and manner in which they affect the economy differ as outlined in the article below. 

What is Recession?

This is a decline in the Gross Domestic Product for two consecutive quarters. This means that the value of services and products produced in a year significantly declines. As a result, consumer behaviour changes, with low consumption as people lose confidence in the economy. This leads to a decrease in the demand for services and products, which results in low production levels. Due to this, the producers are left with no choice but lay off employees as well as enforce pay cuts, a situation which increases the rates of unemployment.  

Although a recession typically occurs between 9 and 18 months, its repercussions can be long-lasting. Despite these negative effects, a recession is said to cure inflation because the Federal Reserve must balance the economy by preventing inflation through slowing the economy. 

What is Slowdown?

This is a situation whereby economic growth occurs but a reduced or slow rate. This means that the gross domestic product has declined as compared to other quarters. The earnings and productions hence tend to grow but at a slower pace. For example, in an instance where the GDP increases by 2% from the first quarter and rose by 1.5% between the second and third quarters, the economy is said to be on a slow down as it’s not growing as fast. 

While the effects of a slowdown may not be as harsh as compared to a recession, low production levels may be witnessed, hence leading to an increase in unemployment levels. 

Similarities between Recession and Slowdown

• Both result in a fall in the Gross Domestic Product
• Both negatively affect the economic conditions

Differences between Recession and Slowdown

Definition

A recession refers to a decline in the Gross Domestic Product for two consecutive quarters. On the other hand, a slowdown refers to a situation whereby economic growth occurs but a reduced or slow rate. 

Longevity

While a recession affects the stability of the economy for several quarters or years, a slowdown can be resolved in a short time.  

Effects on the economy

A recession leads to very low production levels and high rates of unemployment. On the other hand, a slowdown causes low production levels in the affected sectors and causes unemployment.  

Impact

A recession that affects large economies has a worldwide effect while a slowdown may affect specific countries, economies or globally. 

Recession vs. Slowdown: Comparison Table

Summary of Recession vs. Slowdown

A recession refers to a decline in the Gross Domestic Product for two consecutive quarters. It affects the stability of the economy for several quarters or years and has a worldwide effect. On the other hand, a slowdown refers to a situation whereby economic growth occurs but a reduced or slow rate. It affects specific countries, economies or globally and can be resolved in a short time. Despite the differences, both have negative effects on an economy.   

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