These past months, we have heard many people are talking about the possible economic recession. The main causes of economic recession usually circle around business and economic confidence. Usually people spot recession from a significant decline of the country’s gross domestic product (GDP).
But, here we bring you several top possible causes of the recession.
Loss of confidence in the investment
The loss of confidence usually drags consumers to stop buying products. They will become more defensive. Once a sizeable mass heading to the exit signs, there will be a panic.
Consequently, retail sales will slow down. They run fewer ads and lay off employees. The unemployment rate will also rise.
Usually, national banks will increase their interest rates to limit liquidity.
A market crash
The extreme result of a significant drop of confidence is a market crash. Loss in confidence creates a subsequent bear market that drains capital from businesses.
Housing prices and sales falling
As many people lose equity, they consequently cut their spending. That means people will not have the chance to take second mortgages. By some time, that will cause foreclosures.
This was the cause of the Great recession, but with complicated details. At that time, banks lost money, but the main cause was still home values.
Manufacturing slow sales
Whenever the manufacturing sales are going down, then there will be some discussion about the recession. When the 2008 recession happened, the sales for durable goods have started to going down since October 2006.
Poor management
Bad business management can also be the main cause of a recession. The 1990 recession’s main cause was the savings and loan crisis. There were 1,000 banks that failed as the result of land flips, illegal activities, and questionable loans. The lost of assets reached $500 billion.
