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Companies usually lay off workers to preserve profit margins. The workers who have been laid off often spend less on discretionary purchases, such as buying new cars or travelling.
Recessions are a part of the economic cycle, which, when the economy is booming, also has periods of expansion.
Invariably, however, the expansion period peaks and a period of contraction—called a recession—follows.
What causes a recession?
Recessions are not caused by any one single factor and can be triggered by various circumstances. Because of this, there is no reliable way to predict precisely when a recession will begin. There are, however, common causes. These include:
- Global pandemics like COVID-19
- Geopolitical events that increase stock market volatility
- High interest rates
- Low confidence in the markets and the economy
- Market bubbles
- Natural disasters that deliver large scale economic shock
- Sharp declines in consumption and demand
The duration of any given recession depends on the factors leading up to it. For instance, the Great Recession, which began in 2007, lasted for about 18 months. That recession was triggered largely by the subprime mortgage market crisis, which led to a housing market crash.
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