What causes economic recessions?

Economic recessions are primarily caused by a significant decline in aggregate demand or external shocks. Factors such as financial crises, rising interest rates, and a loss of consumer confidence can lead to reduced spending and investment, triggering a recession^[1][3]. Additionally, supply-side shocks, like sharp increases in oil prices or unexpected events such as pandemics, can also disrupt economic activity^[1][4].

The National Bureau of Economic Research (NBER) defines a recession as a sustained decline in economic activity across various indicators such as GDP, employment, and industrial production^[2][6]. This downturn can create a self-perpetuating cycle where lower consumer demand results in increased layoffs and further decreases in spending, exacerbating the economic decline^[2][3].