Economic Recovery.....

Economic recovery is the business cycle stage following a recession that is characterized by a sustained period of improving business activity. Normally, during an economic recovery, gross domestic product (GDP) grows, incomes rise, and unemployment falls and as the economy rebounds......

During a recovery, the economy undergoes a process of economic adaptation and adjustment to new conditions, including the factors that triggered the recession in the first place and the new policies and rules rolled out by governments and central banks in response to the recession. The labor, capital goods, and other productive resources that were tied up in business that failed and went under during the recession are re-employed in new activities as unemployed workers find new jobs and failed firms are bought up or divided up by others. A recovery is the economy healing itself from the damage done, and it sets the stage for a new expansion.

Understanding an Economic Recovery

Market economies experience ups and downs for several reasons. Economies can be impacted by all kinds of factors, including revolutions, financial crises, and global influences. Sometimes these shifts in markets can take on a pattern that can be thought of as a kind of wave or cycle, with distinct stages of an expansion or boom, a peak leading to some economic crisis, a recession, and a subsequent recovery.

An economic recovery occurs after a recession as the economy adjusts and recovers some of the gains lost during the recession, and then eventually transitions to a true expansion when growth accelerates and GDP starts moving toward a new peak.

Not every period of slow growth or even contraction is severe enough to be designated as a recession. In the United States, the most common rule of thumb for a recession is if there are two consecutive quarters of negative GDP growth.
 

The Process of Recovery

During a recession, many businesses fail and go out of business, and many of those that survive cut back activities to reduce costs in the face of decreased demand for their output. Workers get laid off and business assets get sold piecemeal or an entire business might be liquidated. Labor and capital experience a period of unemployment until they can be hired or purchased for new uses. Most of these workers and capital assets eventually end up in the hands of other businesses, sometimes even brand new businesses, that can put them to productive use. Sometimes these are very similar to their previous uses and sometimes these are totally new jobs and lines of business. This process of sorting workers and capital goods into new combinations, under new ownership, at new prices after they have been released from failed businesses or business cutbacks in the recession, is the essence of economic recovery.   

As entrepreneurs re-organize productive labor and capital into new businesses and activities, they must account for changes in the economy that have taken place. In some business cycles, real economic shocks have occurred that helped to trigger the recession, such as the oil price spikes of the 1970’s and 2008 or the disruption to global supply chains resulting from the government crackdowns in response to the Covid-19 outbreak. They usually need to deal with a leaner credit environment relative to the easy credit days of the boom that preceded the recession. New technologies and new organizational forms may be implemented. Almost always, the government fiscal and regulatory environment that businesses operate under changes from the boom to the recession and recovery. 

In the end the recovery can change the patterns of economic activity in an economy, sometimes drastically and sometimes in barely noticeable ways. The economy heals the damage during the preceding parts of the business cycle by reallocating, reusing, and recycling resources into new uses, in an analogous way to how the body breaks down dead and damaged tissue in order to produce new, healthy cells and tissues after an injury. Importantly, in order for the process of recovery to proceed, it is critical that the business and investment liquidations of the recession are carried out and the resources tied up in them allowed to flow to new uses and new businesses.

Eventually this process of recovery leads to a new phase of growth and expansion once resources have been mostly or fully reallocated across the economy.