Recession vs. Depression: An economic downturn is a challenging time for everyone. And almost every one of us has heard the terms recession and depression. These two terms are different from each other in many ways. The main difference between recession and depression is that a recession only lasts for months, while a depression lasts for years. Moreover, depression can be more severe than a recession because a recession only stays in one state or country, but depression has effects worldwide.
Let’s take a closer look at Depression versus Recession
|Recession lasts for months, during the depression for years
|Effect on Economy
|Both have a sharp, negative effect on the economy
|Depression occurs after long recessions
|Depression is more severe and lasts longer
Table of Contents
What Is Recession?
If we look at economic recession meaning: it is a decline in Gross Domestic Product. But there are high chances of getting a Gross Domestic Product contract for a period, but that does not mean a recession. The main characteristics of recession are unemployment, income reduction, industrial production, and fluctuating prices of goods and services. There have been 50 recessions in History till now. Most recently, the US had its recent recession, which was the 51st in History. This was a two-month recession in the early months of 2020 as the result of the onset of the pandemic. The recession has been very common throughout the 19th and 20th centuries. There were only 10 recession cycles between 1945 and 2001, which is fewer than the similar time period in the past. Some economists have concluded that this is because of the less violated business cycle.
What Is Depression?
If we look at the economic depression meaning, it is an extreme downturn in economic activity which lasts for several years. There are various definitions and specifications for depression, as some people take depression as a widespread and more severe recession. High unemployment rates, stalled domestic business activity and international trade, are some of the characteristics of the depression. But when we have X unemployment rate or Y GDP, we cannot say that we have an official depression. Some experts believe that depression lasts only when economic activity is declining, while the common understanding is that depression lasts until economic activity has returned to its normal levels.
5 Key Differences Between Recession and Depression
|A recession can be defined as a decline in the Gross Domestic Product. But there are high chances of getting a Gross Domestic Product contract for a period, but that does not mean a recession.
|Depression can be defined as an extreme downturn in economic activity which lasts for several years. Depression results from a long-term recession, which cannot be controlled.
|Reductions in income, unemployment, reduced industrial production, and fluctuating prices for goods and services are some of the characteristics of a recession.
|High unemployment rates, stalled domestic business activity and international trade, are two noteworthy characteristics of the depression.
|A recession is primarily caused due to the following factors: outweighed demand of suppliers, Market crash, High-interest rates, and the Asset bubble burst.
|A number of different events caused the depression, including the stock market crash, increased debts, illegal decisions, and an unsustainable economy.
|A recession does not last much longer than a depression as it lasts for several months or a year maximum
|a depression has a span of years and typically has higher rates of unemployment and higher decline in GDP.
|Recession does not have a worldwide effect as it only remains in one country and has no foreign effects.
|Depression can also affect foreign countries and their finances as it is a stall in global trade.
Recession vs. Depression Similarities
- Whether it is recession or depression, both are well known due to their downward spiral economic activity.
- Both result in economic loss, unemployment and a long period of unproductiveness.
Recession vs. Depression Examples
- The Great Recession from 2007 to 2009
- The Copper Panic of 1785
- The stock market crash of 1929
- Banking panics in the early 1930s
Recession vs. Depression Pros and Cons
Recession Pros and Cons
Pros of Recession
- The unemployment rate of a recession is far less than the depression, and it does not last much longer.
- Recession does not affect the whole world as they remain one individual or country.
Cons of Recession
- Recessions are characterized by high unemployment rates, as during this period, it became harder for common people to find a job or start a small business.
- During the recession, people have to be very careful while spending their money, so they cannot go out on vacations or have some fun time with family as they have to save that money for their bills.
Depression Pros and Cons
Pros of Depression
- Depression is not as common as a recession; they are very rare and only happen after a long recession.
- These days the banks and government are more prepared for depression as compared to those in the 1930s. So, they can handle it very well.
Cons of Depression
- Depression has a very long span and lasts for years. It also has higher rates of unemployment and declined GDP. Which means people have to stay unemployed for a longer time.
- During the depression, the stock market collapsed, and the stocks lost most of their value.
Both the recession and depression are well known due to their higher unemployment rates and economic downturn. But if we look at recession Vs. depression differences, the depression has a longer span and stronger effects than the recession. Both also have different characteristics. Reductions in income, unemployment, reduced industrial production, and fluctuating prices for goods and services are some of the characteristics of a recession. While depression has primarily two characteristics: High unemployment rates and stalled domestic business activity and international trade. Moreover, if we compare the recession versus depression span, the depression lasted much longer than the recession and sometimes it took years to recover from a great depression.