Economic downturn definition


An economic downturn implies a fall in real GDP. A downturn also includes that period just before a recession – with a fall in the rate of economic growth and a widening output gap.


A downturn will also include a period of negative economic growth and recession.


An economic downturn is part of the economic cycle (sometimes referred to as trade cycle or business cycle)

This shows two major economic downturns in the UK 1979-81 and 1990-91

The UK definition of a recession is – negative economic growth for two consecutive quarters.

Features of economic downturns

The definition of an economic downturn is less strict than a recession. For example, there may be a consensus we are in an economic downturn even with a small rate of positive economic growth. With very low economic growth, there is likely to be a negative output gap and lower living standards. For example, during 2010 – 2012, the UK economy was stagnating with economic growth of around 0%. In addition, inflation was relatively high, meaning many saw a fall in their real wages. But, this was considered an economic downturn

The key features of an economic downturn include:

  • Negative or very low economic growth
  • Rising unemployment
  • Falling asset prices – shares and house prices
  • Low confidence and falling investment. (the accelerator theory suggests that a fall in the rate of economic growth is enough to lead to lower unemployment)
  • Rising spare capacity (negative output gap)
  • Increasing government borrowing (due to higher government spending on benefits and lower tax revenue.

Usually, economic downturns are temporary and part of the economic cycle.


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Comparing different recessions

The post 2008 recession has seen the longest decline in real GDP on record. 55 months after the peak output of 2008, the UK economy is still 4% below it’s peak. By contrast, in the same time frame during the early 1930s, the economy had recovered to be more than 2% higher than the 1930 peak.

The 2008-13 recession is longer lasting than even the great depression. Yet, curiously the 2008 recession has seen one of the least damaging rises in unemployment.

Firstly, a look at the percentage change in real GDP since peak output (just before when the recession started)


For the first 15 months, the decline in real GDP is comparable to the great depression of the 1930s. The great depression shows a bigger fall in GDP (-8.0%) from peak. But, after 33 months, the economy recovered quite strongly in the early 1930s. The experience in 2008-13 shows a rare continued stagnation.

Unemployment in different recessions


This shows that the rise in unemployment has been relatively muted during the 2008 recession. In 2008-12, There has been a surprising growth in private sector employment – despite weak private sector investment and spending.

See: reasons to explain the UK unemployment mystery

Hours worked in different recessions


This  shows that 17 quarters after the peak GDP, employment levels have fared better in 2008 than in other recessions. A rising population may be one factor, but the muted rise in unemployment suggests that the labour market in 2008-13 has proved more resilient and more flexible than many might have expected.

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