What is a technical recession, how to measure it and especially how to get out of it. Recent cases in the EU
In Romania, recession is mainly measured by the evolution of real GDP and is usually defined as a “technical recession” when we have two consecutive quarters of GDP decline compared to the previous quarter, on a seasonally adjusted series. Statistics confirmed on Friday that we have entered such a recession
How to measure the recession in Romania
The main indicator is quarterly real GDP. The National Institute of Statistics (INS) publishes quarterly GDP data. Technical recession occurs when GDP falls two quarters in a row compared to the immediately preceding quarter (eg, decline in the third quarter compared to the second and in the second quarter compared to the first).
The definition is aligned with international practice (EU, IMF), where real GDP is the central indicator for identifying recessions.
The difference between recession and economic depression
“Technical recession” in Romanian public discourse strictly means the two consecutive quarters of GDP decline, without directly taking into account other indicators such as employment or population income.
A broader economic assessment also takes into account real population income, employment/unemployment, industrial production, retail and wholesale sales to judge how severe and widespread the contraction is.
In short, a recession is a “normal” (albeit painful) downturn in the economic cycle, and a depression is a much more severe and much rarer variant of that downturn.
A recession is, in practice, a period of economic decline that lasts at least a few months. They are part of the business cycle: they occur relatively often, are unpleasant, but usually limited in duration and magnitude.
Economic depression is an extremely severe and prolonged recession. It is usually described as a period in which GDP falls by more than 10% or in which the recession lasts 2–3 years or more.
It is accompanied by “unusually” large increases in unemployment, collapses in output and investment, numerous bankruptcies, credit crunch, greatly reduced trade, deflation or episodes of very high inflation, and strong exchange rate volatility.
In short, recession is like a cold in the economy, it passes over time; depression is a serious and long-lasting disease, with collapses in production and massive unemployment.
How to get out of a recession
An economy emerges from a recession when activity begins to grow again: real GDP returns to surplus, output and employment first stabilize and then rise, and consumer and business confidence improves. We are talking about sustained economic growth, not an isolated “jump”.
In addition to GDP, economists look at whether negative reversals in employment (unemployment stabilizes or declines), industrial production and trade stop.
The role of economic policies: In practice, the exit from recession is often accelerated by more “expansionary” public policies.
Monetary policy: The central bank cuts interest rates or provides cheaper liquidity to stimulate lending and investment.
Fiscal policy: the government increases spending (eg in public investment) or cuts certain taxes, leaving more money in the economy.
Recent cases of technical recessions in the EU
Several EU economies have fallen into technical recession over the past two years, usually with very small quarter-on-quarter declines in GDP.
Euro zone
Eurozone GDP fell by 0.1% in Q4 2022 and again by 0.1% in Q1 2023, meaning the currency bloc as a whole met the standard definition of a technical recession (two consecutive quarters of contraction).
Germany
Germany posted back-to-back quarterly GDP declines in winter 2022-2023, with output falling 0.4% in Q4 2022 and 0.1% in Q1 2023; this period is commonly described as a technical recession driven by high energy prices, weak foreign demand and tight financial conditions.
The German economy then remained broadly stagnant in 2023-2024, with another contraction in the 4th quarter of 2023 and weakness expected in early 2024.
Other cases in the EU during the same period
In that euro zone winter recession, quarterly GDP also fell in countries such as Ireland, Greece, Lithuania, Malta and the Netherlands, contributing to the bloc's technical recession, although not all of them individually had two consecutive negative quarters.
The European Commission's forecasts at the end of 2022 already predicted that “most Member States” would face a technical recession in the winter of 2022-2023, with growth only returning from the spring as the energy shock and inflation eased.
These measures support aggregate demand: consumption, investment, and exports, which helps firms produce more and rehire labor.
- The “internal” mechanisms of relaunch
Even without very aggressive policies, there are several mechanisms by which the economy tends to recover:
Price and wage adjustments: After painful corrections, costs come down, making some investments profitable again.
Cleaning up balance sheets: Firms and banks reduce their bad debts, which later allows them to resume lending and investing.
Restoring confidence: As uncertainty decreases and negative news becomes rarer, consumers and firms become more willing to spend and invest.
- Practical signs that “I'm out”
In simple terms, you know the economy is out of recession when:
Real GDP has been growing for several quarters in a row.
Unemployment stabilizes and then begins to decline.
Firms resume hiring and investment.
Sentiment indicators (consumer confidence, confidence in the economy) are improving
