In its recent report, which was presented to Luc Frieden in the context of the ongoing coalition negotiations between the Christian Social People’s Party (CSV) and the Democratic Party (DP), the committee stressed that Luxembourg is likely heading for a recession by the end of 2023.
But what exactly is a recession? Our colleagues at RTL Radio provide an overview.
A recession is one of the cyclical phases of economic activity, alongside upswings, booms, and depressions.
A recession occurs when an economy experiences two consecutive quarters of negative growth, as measured by GDP, or gross domestic product.
There are many causes of recession. The current decline in economic activity has various contributing factors, including the lingering effects of the Covid-19 pandemic, the ongoing conflict in Ukraine, rising inflation and interest rates, and elevated energy costs.
The implications of a recession extend beyond economic indicators, impacting everyday life for individuals and businesses. Wage growth slows, consumer spending declines, corporate profits diminish, leading to reduced investment and, in some cases, increased short-term work.
While the current economic situation is concerning, it is important to note that recessions are not uncommon occurrences. Similar periods have occurred throughout history, such as the oil crises of the 1970s and the 2008 financial crisis.
Despite the challenges, there are reasons for optimism. GDP is projected to recover to 1.5% growth next year. Experts suggest that while recessions can be painful, they can also serve as a mechanism for economic adjustment and correction, restoring balance to the economy.
