Two Consecutive Quarters of Negative Growth
Technically not officially correct, though most people believe it is.
There are two primary causes of recessions.
1.The 'business cycle' recession. Through business expansion the economy reaches a peak when there is greater demand for inputs (resources and labor) than any increase in supply can fill. This causes a spike in input prices (resources) and a much slower increase in labor prices. This puts an upward pressure on inflation which leads to higher interest rates which causes a slowdown in business activity.
It's very difficult to completely smooth out business cycles to avoid booms and busts, however, central bankers have gotten much better at doing that and the time between recessions has tended to get longer.
There were recessions in 1982 and 1990-1991 that were caused by interest rates sharply increasing to fight inflation. Central bankers understand a lot better how an inflationary spiral can occur, and they've been able, whenever necessary, to stop them early without causing a recession. The severe recession of 1982 was caused by the sharp raising of interest rates to deal with an inflation rate that started to increase in 1966. This increase in inflation had multiple causes though, not just the 'business cycle' including excessive government spending and deficits.
I mentioned at the start that '2 quarters of negative economic growth' is not the actual official definition of a recession. Officially, the National Board of Economic Research (NBER) in the United States decides when a recession occurred. According to them, there was a recession over 2000-2001. However, if you check the numbers, not only was there not 2 quarters of negative economic growth, there was not even a single quarter of negative economic growth. The lowest it got was one quarter of 0.5% annualized growth (in real terms, i.e net of inflation.)
So, this means, according to what most people think is the definition of a recession: two quarters of negative economic growth, there was no recession from sometime in 1991-1992 to sometime in 2008, or approximately 16 years of continued expansion.
2.The 'credit freeze' recession. This occurs when a large number of loans go bad via the bursting of an asset bubble. This is essentially what happened in 1929 and 2008. This causes credit markets to freeze up as banks aren't certain of their financial positions or even whether they'll face a run. It tends to take a long period to overcome these recessions as market confidence needs to be regained before people are willing to get loans again.
There are two other theoretical possibilities
1.A recession caused by declining population (though that wouldn't necessarily be a GDP decline per capita)
2.A decline caused by a ceasing of innovation which would obviously lead to a lack of new investment. Though this is hypothetical, many economists have argued that the increase in oligopoly in the United States combined with the seemingly increasing cost of innovation along with the worker skill mismatch is one of the main reasons, if not the main reason, why economic growth has slowed down for the last 20 years or so. I would include tariff barriers and excessive government regulation as part of this theoretical possibility.
