Hard landing – definition and meaning

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.

The Financial Times’ glossary of business terms, ft.com/lexicon, says the following regarding the term:

“Occurs when an economy that has recorded a period of very rapid growth experiences a severe slowdown, normally due to overheating and an excessive policy response such as substantial credit tightening, a revaluation of the currency, etc.”

Hard Landing - two definitions and images
If the economy begins to overheat, the central bank usually raises interest rates. However, it must be careful not to trigger a hard landing.

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.

According to Wikipedia:

“The criteria for distinguishing between a hard and soft landing are numerous and subjective.”

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.

Video – China: is a hard landing looming?

This ABS-CBN News video talks about whether China’s slowing economy is in for a hard landing. The Economist Intelligence Unit warns that an abrupt change in China’s GDP growth rate may occur in 2018.

The country is pushing aggressively for the One Belt One Road initiative.