Difference Between Depression and Recession

Main Difference – Depression vs Recession

Every economy in the world deals with a certain amount of uncertainty. Recession and depression are two economic terms associated with this uncertainty. Thus, it is important for the investors to examine and analyze how the economic depression and recession work; with proper understanding, they can make economically efficient transactions with certain pre-planned corrective actions. The main difference between depression and recession is that depression is a more severe downturn than a recession. 

1. What is Depression?

2. What is Recession?

3. What is the difference between Depression and Repression?

What is Depression

Though there’s no specific definition for economic depression, the fundamental depth involves considerable fall in Gross Domestic Product (GDP), resulted in long-term unemployment.

There are few ways to identify economic depression.

• GDP falls rate is significant (Ex: 10% or more)
• GDP falls over a significant period of time (Ex: more than 3 years)

Unlike recession, the impacts of an economic depression continue over several years. This results in breaking down of banking systems, financial markets, manufacturing and trade sectors, dramatic price falls, unemployment and tight credit situations.

The stock market crash of 1929 marked the start of the Great Depression.

What is Recession

If there is an economic downturn during two consecutive periods under consideration, it is known as an economic recession. This is normally built in the economic cycle itself. According to the definition of National Bureau of Economic Research (NBER), an economic recession will continue across few months period. The recession situation can be identified by observing the real GDP, employment, real income, production, deflation of an economy. Depression usually occurs after a recession period.

Similarities between Depression and Recession

• Both are unfavorable economic conditions
• Both economic conditions result in increasing unemployment, sinking asset values, fear,

Difference Between Depression and Recession

Definition

Depression is a long-term GDP fall or significant amount of fall in GDP.

Recession is defined as GDP fall among two consecutive quarters under consideration.

Occurrence

Depression does not happen frequently. 

Recession is a natural occurrence and has room in the economic cycle itself.

Impact

Depression has a severe impact on the economy in the longer run.

Recession‘s results are short-run; hence impact can be managed.

Depression vs. Recession – Conclusion

Both economic depression and recession are two economic concepts that have certain adverse impacts on the overall economy. Therefore,  it is very important to understand features, positive and negative impacts, similarities and differences between depression and recession, especially for the investors and market plays in an economy. Economic depression is a longer-run economic phenomenon that comprises of certain long-term impacts such as unemployment, economic bankruptcy, collapsing financial markets, etc. On the other hand, economic recession is a usual phenomenon that comes with the business cycle of an economy. It has short term impacts on the economy. By carefully analyzing the behaviors of economic depressions and recessions, investors and business firms can make pre-preparation activities to minimize possible adverse impacts.

Image Courtesy:

“Recession” (Public Domain) via Public Domain Pictures

“Depression-stock-market-crash-1929” By Freelancer Journalist (CC0) via Commons Wikimedia

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