Animal spirits is a term coined by the economist John Maynard Keynes. The term was chosen to emphasise the importance of confidence and the ‘gut instincts’ of businessmen on their future business prospects.
"Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities." (161-162) – J.M.Keynes, General Theory.
Keynes was trying to say that raw economic data such as profit levels may be inadequate. For example, profits may be high, but, if businessmen fear a recession then investment is likely to dry up.
Animal spirits may also refer to the risk involved in taking investment decisions which invariably have an element of risk attached.
If people expect a recession, then confidence will be low and saving rise. In this situation, Keynes argued for expansionary fiscal policy to boost demand and economic growth.