Business Studies – 6.1.1 Business cycle | e-Consult

Recession is a significant and prolonged downturn in economic activity. Key characteristics include a fall in Gross Domestic Product (GDP) for two consecutive quarters, rising unemployment, and decreased consumer spending. Businesses typically experience reduced demand for their products or services during a recession.

Two potential consequences of a recession for businesses are:

• Reduced Profitability: Lower sales and increased costs (e.g., potential need for cost-cutting measures) can lead to a decrease in profit margins, potentially impacting the financial stability of businesses.
• Increased Risk of Failure: Businesses with weak financial positions may struggle to survive during a recession. Reduced cash flow and difficulty accessing credit can increase the risk of bankruptcy and closure.