Reviewed by Jun 11, 2021| Updated on
In economics, a soft landing is a cyclical downturn that prevents recession. The term "soft landing" is derived from aviation. It refers to the type of landing that goes smoothly and without a hitch or any bumps or crashes.
Soft landing usually defines efforts by the central banks to raise interest rates just enough to prevent an economy from overheating and experiencing high inflation, without triggering a massive increase in unemployment, or a hard landing.
It can also refer to a sector of the economy that may have a slow down without crashing. A soft landing implies the cooling down of the economy after a period of rapid expansion which happens smoothly.
A smooth landing ensures that an economic contraction is mild and does not lead to recession, as can happen with a hard landing outcome.
There was a practice of landing the hot air balloons which would reduce their buoyancy as it comes down. Just like a lunar lander, it later also applied to aviation, gliders, and spacecraft. The concept was adapted to economics in the name of a soft landing.
A soft landing in the business cycle is the process of an economy going from development to slow-growth to potentially flat, as it approaches but prevents a recession.
A hard landing is often seen as a result of tightening economic policies that bring high-flying economies to a sudden, sharp check of their growth. It can be seen in the case of monetary-policy intervention intended to curb inflation. Economies suffering a hard landing often fall into a period of stagnation or even recession.
Several countries have taken soft landing measures in the past to prevent a recession in their economy. Countries such as India and the USA have been part of the exercise.
In 2013, Indian Central Bank, i.e. the Reserve Bank of India, had announced rate reduction to boost consumption and in turn help in economic recovery.