What Is a Financial Downturn?

A financial downturn is a change in a financial situation, in which a person or organization that has been doing well financially suddenly begins to experience difficulty. The logic behind this particular term is that a company or person who is doing well financially can plot profits and success on a graph moving upward, while a downturn indicates falling finances or profits. This term can be applied to a private citizen, a larger organization such as a bank or business, and much larger groups such as countries and even the global economy. A financial downturn can result in other financial situations, such as a depression or recession.

Unlike a financial upturn, which is a period of prosperity or profits, a financial downturn marks a time in which a company or person experiences financial hardship. The easiest way to visualize this period of time is through a graph that indicates time along the bottom and profits or revenue along the side. As a person or business is profitable, the line of the graph is going to move from left to right in an upward direction, indicating profit over time. When this is no longer true, and a company or person begins to lose money, the line turns downward to indicate a financial downturn.

Although news reports often refer to a financial downturn with regard to global or national economics, it can be used on just about any scale. If someone makes a great deal of money at his or her job, and then loses that job and cannot find a new one, then this loss of income indicates a downturn in his or her personal finances. Similarly, a company of any size can experience a financial downturn due to a loss of revenue from damaged inventory, increased operational costs, or from diminished sales.

A financial downturn at a national or global level often refers to large-scale economies rather than individuals and particular businesses. A country can experience a downturn, often due to lower revenue for the country, higher expenses, or other economic factors for that country that have become negative. Businesses within that country, however, can still be profitable and may post record financial gains, since the condition of a larger economic system may not necessarily reflect on every facet of that system on a smaller scale. A financial downturn often leads to a recession, in which a nation’s economy experiences a period of decline, or an exaggerated and longer period of decline often referred to as a depression.