What Is a Soft Landing?
2 min read · · Korean original
In economics, a soft landing refers to an economy slowing down gradually after a period of rapid growth while avoiding a severe recession.
The term comes from the image of an airplane at the end of a flight, slowly lowering its altitude and touching down smoothly on the runway. It describes a situation in which a booming economy cools down slowly and steadily.
The opposite of a soft landing is a hard landing, in which the economy falls sharply into a downturn and recession.
Why a Soft Landing Matters
So why is a soft landing important? When an economy grows quickly, inflation can occur. When that happens, institutions such as central banks adopt monetary policies like raising interest rates to keep inflation in check. Doing so lets them manage the economy's cycle of ups and downs appropriately and guide it toward a soft landing.
When a soft landing is achieved effectively, inflation can be brought under control while growth continues, all without dealing a heavy blow to businesses and households. This helps keep financial markets stable and protects the job market.
The Business Cycle
The economy, meaning the overall level of a country's economic activity, tends to rise and fall repeatedly. This is called the business cycle, or economic cycle. When the economy passes through a boom, reaches its peak, and then begins to decline, consumption, investment, employment, and income slow down, and corporate profits shrink as well.
If the economy declines too quickly at this stage, the economic system comes under threat and becomes shaky. That is why governments and central banks step in ahead of time with appropriate fiscal and monetary policies to keep the business cycle running smoothly.
Wrapping Up
A soft landing is important for an ideal and sustainable business cycle. Just as an airplane that has finished flying at high altitude must land safely and smoothly on the runway before it can prepare for its next flight, the economy also needs a soft landing before it can move steadily toward the next upward cycle.
