What effect does a decrease in GDP typically signify about the economy?

A decrease in GDP is often a clear indicator of a recession, which is characterized by a decline in economic activity across the economy that lasts for an extended period. GDP, or Gross Domestic Product, measures the total value of all goods and services produced in a country during a specific time frame. When this figure declines, it suggests that the economy is contracting, leading to reduced consumer spending, lower business investment, and potentially higher unemployment rates.

In the context of economic cycles, a decrease in GDP typically suggests that an economy is facing challenges, such as decreased demand or external shocks, which contribute to a slowdown. Conversely, an expansion in economic activity would be reflected by an increase in GDP, indicating positive growth. Stable growth would mean GDP is maintaining a consistent level rather than declining, and an increased trade balance reflects a situation where exports significantly surpass imports, which is not directly tied to GDP trends in isolation. Thus, a decrease in GDP is most accurately associated with a recession.