A hard landing may refer to a rough or clumsy landing of an airplane or a sharp economic slowdown following a period of rapid growth. For example, a hard landing occurs when GDP had been growing at 6% and then suddenly the economy starts to shrink. GDP stands for Gross Domestic Product.
A hard landing in economics, as in aviation, does not mean a crash. Rather, it refers to a landing that exerts considerable stress and may cause damage or injury.
We use the aviation metaphor when talking about a high-flying economy that suddenly slows down or shrinks.
This may occur following a central bank’s intervention to reduce inflation. Put simply; the central bank raises interest rates, which not only curbs inflation but slows down economic growth too much.
When the hard landing occurs in a major economy, such as China, countries across the world can suffer the consequences.
When a small economy, such as Ecuador, slows down abruptly, the effects abroad are negligible.
Hard landing vs. soft landing
The term contrasts with a soft landing. A soft landing occurs when economic growth slows down enough to control inflation but avoids a recession.
Hard landing in the business cycle
Every economy goes through what we call a ‘business cycle‘ or ‘boom-bust cycle.’ The business cycle refers to alternating periods of economic recovery and recession.
Fluctuations in production and trade in a market economy cause the business cycles.
When a sharp economic contraction or slowdown follows a period of GDP growth, that economy is suffering a hard landing.
Hard landings can sometimes lead to economic recessions and even depressions. A depression is more severe than a recession.