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What is the Impact of a Recession on a Country?

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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 10 December 2016
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There are many ways to evaluate the impact of a recession on a country. Some claim that the impact is likely to be minor because the duration of a recession is shorter than a depression. This claim is disputed, and some feel that a recession, usually defined as no more than a 10% drop in the gross domestic product for at least two back-to-back quarters of a year and less dramatic than the circumstances of a depression, still has long-reaching effects. Recovering from a recession doesn’t mean all businesses, governments, or individuals recover, and sometimes the interventions that stimulate recovery lead to undesirable consequences.

The immediate impact of a recession is felt on a number of levels. It can affect average spending and/or luxury spending, and it may raise or lower housing prices. Worker salaries typically go down, and some jobs are permanently lost. Economists have noticed that, even as the country is recovering, certain areas of spending may remain unstable, and there is instability in the market place with sudden spikes or dips in stock values and other investments.

Governments are often directly involved in minimizing the impact of a recession on a country. They may borrow to shore up markets or to offer more assistance to adversely affected people or companies. This borrowing may mean future cuts in vital programs, or it could be something that then becomes the responsibility of taxpayers. Borrowing eventually has a cost for the country, the government, and its people.

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This last example is something called "scarring," and experts are increasingly recognizing that it, along with the costs that eventually must be paid, sometimes far in the future, are important impacts of a recession. Some financial experts have discussed the long-term impact of recession on education, from pre-school to university level, where forced cuts minimize educational opportunities for others, for life. These may come in the form of cuts schools must make or reductions in program access, but it also occurs because individuals with less money can’t invest to the same degree in their children’s educations.

On the example of education alone, it’s easy to see how a recession can have a long-lasting impact on a country. Fewer educational opportunities mean less chance of moving into career fields that pay well, which means some people remain in below middle class for life. This can then burden the state with higher demand for social services, which can cause the government to need to borrow additional funds or make decisions to ignore the needs of a cross-section of society, worsening the problem. Such an example suggests that impact may last far beyond a current recession, and become multi-generational in scope.

In the short-term, the impact of a recession on a country is typically changes in prices of goods and services, which may rise or fall. Fewer jobs is another common element. Market stability, companies holding onto money instead of investing it, and most people and industries having less to spend may result. Though these characteristics may improve over time, in the long-term, a country may be scarred by its downfalls. For some, lives and opportunities change dramatically, and even political and economic emphasis shifts to adjust to new dynamics.

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