An economic stagnation is defined as the contraction in the gross domestic product and the decline in the general economy for a period of six months or more, and it can be observed through; Unemployment rises, sales decline, etc., but it does not last more than a year and is milder than a depression that lasts for a longer period, and it is considered a normal part of a capitalist economy.
Causes of economic recession
There are many reasons that lead to economic stagnation in the markets, the most important of which are:
High interest rates:
High interest rates reduce financial liquidity and thus lead to economic stagnation, for example when the Federal Reserve raised interest rates to protect the value of the dollar, which caused a recession in the 1980s.
Stock market crash:
The sudden loss of confidence in investment leads to the withdrawal of capital from companies, and thus the collapse of the stock market and the occurrence of an economic recession.
Decreased manufacturing orders:
The decrease in orders for goods leads to an economic recession, as the demand for goods fell in 2006, which led to a recession in 2008.
Illegal activities, land price fluctuations, and dubious loans led to a recession in the 1990s, which led to the failure of more than 1,000 banks in the world.
Lifting restrictions on loans:
Removing restrictions on loan ratios in crisis situations will cause damage to banks, and thus economic stagnation.
Wars lead to economic stagnation in the country, as stagnation occurred in 1953 AD after the Korean War, and stagnation occurred in 1945 AD after World War II.
This happened once when President Nixon decided to keep prices too high and thus reduce the demand for goods, and employers laid off workers because they objected to cutting their wages.
Effects of Economic Recession
Economic recession leads to many negative effects on the state and individuals, the most important of which are:
Slow and negative growth in production.
High unemployment rates.
Social and political unrest.
The failure of companies and industries in the state.