Compare depression and recession

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Let us learn about the depression and recession before understanding the differences between them.

Depression

Depression is a more prolonged and severe form of recession. According to the IMF, if the GDP declines over 10% then it is considered as depression. Depression is always borne out of recession and debate continues when it will end, some say it will end when the economy starts to grow again and some say it will end output returns to pre-crisis level.

Some of the greatest depressions are mentioned below −

  • Worst downturn was recorded in 1929 and lasted for 10 years leaving a deep scar on the global economy. Starting 1929 and 1933 and other in 1937 to 1939.
  • Initial downturn was so severe and recovery was weak from 1933 which was quickly erased by 1937 US trouble.

Recession

If a country reports negative gross domestic product for two consecutive quarters then it is declared as recession. Recession lasts for a minimum of six months and nobody knows how long it will last.

It is a part of the business cycle and the toughest period for the economy. Economy grows before reaching its peak and then starts declining and after some time the economy recovers and rises again. This cycle continues again and again.

To define when a country enters a recession or not, GDP is the key parameter. Other measurements are employment, industrial production, stock market or retail spending. We can get data more frequently about these measurements than GDP.

Some of recessions are as follows −

  • Banking crisis
  • Market crash etc.

Recession leads to unemployment rise, reduced investments etc. Some countries faces stagflation which means despite low employment and lacklustre economic growth, inflation remains high

Greatest recessions are mentioned below −

  • The 2008 financial crisis is the worst recession recorded since World War II. In advanced economies (mainly in the US) Banking and financial markets went for deregulation for a period in years leading to crisis.
  • This encourages banks to expand their mortgage lending and introduce high risk. Financial products to market are misunderstood.

Differences

The major differences between depression and recession are as follows −

Sr.NoDepressionRecession
1
Recession is drastic and sustained.
Fall in country economic activity results in fall in GDP.
2
It is an effect.
It is the cause.
3
Decided based on a decrease of 10% or more in real GDP.
Decided based on negative GDP for two successive quarters.
4
Occurs rarely.
Frequently occurs.
5
Strikes the world economy at once.
Strikes at different times for different countries.
6
Effect is severe and continues for a long time.
Effect is severe.
7


Low rate of unemployment.
raja
Updated on 06-Jul-2021 11:38:35

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