Downturn

A downturn is a slowdown or worsening of conditions within a business. For instance, a decline in corporate profits could be one of the parts of a downturn.

On a larger scale, a downturn is better known as an economic downturn. In the context of the stock market, this is referred to as a bear market. This is taken in contrast to a bull market, which is a period of high valuation. In some cases, especially when it does not occur for an extended period of time, an economic downturn is viewed as a necessity. It may be viewed as a means to balance out a particularly extended period of bull market. In others, however, it may lead to a full-blown economic recession, or be a component of one.

The term “recession” refers to a worsening of economic conditions over a certain period of time. This may be made manifest by a slowdown of economic activity, a drop in Gross Domestic Product (GDP), an increase in unemployment rates, a decrease in investments, a decline in purchasing power, and an increase in bankruptcies, among others. One of the main causes for recession is a decline in spending, so governments may decide to lower taxes and increase money supply in order to stimulate the economy.

Recessions are said to come in different shapes. For example, a V-shaped recession is characterized by a very short and steep decline which is quickly followed by recovery. U-shaped recessions involve longer periods of downturn, and W-shaped recessions involve more than one incidence of rapid decline and recovery.

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