What Causes Recessions?
Recessions are the results of imbalance in the market, triggered by external or internal factors. It often causes big declines in asset prices. Market imbalances that cause recessions can be triggered by geopolitics, economic cycles, and many other forces. The financial sector is always involved. Most economic theories attempt to explain why and how an economy goes into recession. Some economists focus on economic changes, including structural shifts in industries, as most important. For example, a sharp, sustained surge in oil prices can raise costs across the economy, leading to recession. Some theories say financial factors cause recessions. These theories focus on credit growth and the accumulation of financial risks during good economic times, the contraction of credit and money supply when recession starts, or both. Monetarism, which says recessions are caused by insufficient growth in money supply, is a good example of this type of theory. Other theories focus on psychological factors, such as over-exuberance during economic booms and deep pessimism during downturns to explain why recessions occur and persist.
How Companies respond to recession
Companies respond to recession in varying degrees of readiness and health:
Companies can respond by putting in place some key defensive elements, like cost cutting, price adjustment, cash preservation, and shoring up supply chains. Other measures such as