What Is a Recession, and What Causes One?

Recessions are periods of falling economic activity. They can be triggered by many factors.

By Iris Penhaligon | Oct 18, 2026 | 4 min

A recession is a significant decline in economic activity. A common rule of thumb is two consecutive quarters of falling real GDP, though official definitions vary.

Recessions affect jobs, incomes, and business investment.

I Causes

— Financial crises
— Sharp rises in interest rates
— Energy price shocks
— Falls in consumer or business confidence
— Global events

II Signs

— Rising unemployment
— Falling consumer spending
— Lower business investment

III Policy responses

Central banks may cut interest rates. Governments may increase spending or cut taxes.

IV Recovery

Recoveries vary in speed depending on the cause and policy responses.

This is general educational information about economics, not financial, investment, or tax advice. Consult a qualified, licensed professional before making financial decisions.

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