Top 5 major Economic Effects of Recession on Economy


There is a general economic decline during recession. The economy has a tremendous setback. The purchase of the people comes down due to low salaries or lack of sufficient income. This results in slump in market with goods and services not being availed of by people. Production slows down and in turn prices go up. In fact during recession, many firms are forced to sell their products at throw-away prices and suffer from losses as a result.

Recession is something to be dreaded by producers as well as consumers. Both suffer during these hard times. Both need each other. In case, consumers do not have the purchasing power, then production suffers. Less production means less profits for producers who will find it difficult to run their business houses.

The economic scenario during recession is pathetic. It is interesting to note how the economy suffers during such traumatic times as it affects us all.

Recession impact on the economy

  • Slump in the market – Goods and services are difficult to be sold as the purchasing power of the people comes down.
  • Stock prices come down – Investment suffers. The industrial production is badly affected as investors avoid investing in companies that might suffer losses during recession. Bigger companies are able to withstand the setbacks but smaller companies have a tough time and some may end up closing down.
  • Increase in unemployment – People are thrown out of jobs. They are left in the lurch. They are unable to meet both ends. Many goods and services are not within their reach.
  • Depression – Recession causes depression if it persists for a long time. Negative trends are visible in the stock market and rapid unemployment is there. Companies need to be bailed out by the government. Public spending suffers a set back.
  • National debts on the rise – Increase in national debts means less money can be spent by the government on development. Money gets diverted in bailing out companies. The recent recession in the U.S. indicates how banks have to depend upon federal aid for their survival. Taxpayers money is being spent in giving these banks a boost.

Recession is definitely bad for economic growth and development. It slows down the economy. Investors hesitate to invest, and producers are unable to churn out products. Consumer lack the necessary money due to unemployment and cannot therefore buy goods available in the market.



  1. Simran Shayal on

    Hi there, i have went through your blog.I found it pretty interesting and I would like to thank you for the information that you have uploaded for everyone to read it.It gave me some basic understanding and it helped me a lot in my assignments

    Thank you,
    Simran Shayal

    • Hi there !
      Thankyou so much for those lovely comments that you people have given above. They are a tremendous support to me and give alot of encouragement to do better. Thanks alot once again for using this website ! God bless !

  2. Hello, I would just like to say thank you for posting this. I will be using this for essay on the recession.

    Thank you again,
    Bailey Mabou

  3. Funnily enough you could argue some people win from a recession.

    Inferior goods such as bus travel get exploited much more during times when money is tight. People prefer to take the bus rather than the train say, because it is cheaper. In essence, business’ which produce inferior goods, tend to be affected positively. Another example could be Sainsbury’s basics food. (They will have more sales during a recession).

    Theres another aspect to it, funnily enough boarding schools prospered during the UK recession. Although at first thought we would think the demand for expensive boarding schools would decrease, in reality, money is so tight for most families in times of recession that both parents have to start working so they send their children to boarding schools as they don’t have time to care for them etc..

    So yeah, I guess some people do win

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