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Recession Vs. Depression

Saptakee Sengupta Apr 17, 2019
Recession and depression are both responsible for the slowdown in market economy. Read ahead for a brief insight into these two economic crises.
Before going into deeper analysis of the subject matter, mentioning this quote is worth it: "When other people lose their jobs, it's a recession. When you lose yours, it's a depression." This quote does involve some subjective judgment to differentiate the two concepts.
Definition of recession and depression follows no ironclad rule. It can be differentiated only by judging the nature of economic downfall and its outcome. Both are similar in few aspects, especially when negative impacts are taken into account.
The difference lies only in their effects and the lasting period. The former lasts for a short period while the latter has a long-lasting effect. The difference between the two has been studied by economists deeply, and the paragraphs ahead will help you to better understand these concepts.
Let us first study their history. The Great Depression was a severe economic downturn before World War II. It started in the US in the year 1929 and lasted till late 1930s. It had devastating effects and gradually showed far flung effects worldwide.
Economic slowdown with decrease in profit price and increase in the rate of unemployment was prominent during this term. This was a period when the globe was worst affected by long-lasting depression. In December 2007, the US economy was affected by recession.
This was a period of the financial crisis. The year 2007 - 2010 is referred to as The Great Recession; the effects were globalized with pronounced deceleration of economic activity.


Recession is a slowdown of business activity for a given time. It can be defined as a contraction in business cycle and decline in GDP for two consecutive quarters.
The National Bureau of Economic Statistics describes it as: "A recession occurs when a significant decline in the economic activity is spread across the economy, lasting more than a few months, normally visible to real GDP, real income, employment, industrial production, and wholesale sales." 
The signs of this condition are reduced output, increase in the rate of unemployment, low corporate profits, and increased rate of bankruptcies. The worst recession in the last 60 years was experienced in the US that started in November 1973 and ended in March 1975, during which the GDP fell by 4.9 percent.
Depression is a severe form of recession that involves complete or deep decline in investment and output. All the effects of recession are seen in this form as well, only taking a larger shape. The thumb rule for determining it is decline in real GDP by 10% or more.
Although there is no yardstick for defining this concept, it is normally accepted that recession lasting for more than 3 years turns to be depression. The last depression in the US started in August 1929 and lasted till 1938, during which the GDP fell to 18.2 percent.
The difference between the two can be judged by the time frame and economic conditions. Depression is sustained, and a more severe downturn in the economy is experienced. These two concepts thus can be differentiated on the basis of their effects on the business economy, fall in the rate of GDP, and the period of lasting.


Regardless of the nature of economic downfall, either recession or depression, the effects on the economy and financial market are more or less the same. Abnormal increase in unemployment and shrinking output and investment are the worst effects of this slowdown.
Rising bankruptcies, financial crisis, and reduced amount of trade and commerce are also the outcomes of their occurrences. Increase in the rate of high volatile currency, fluctuations in money (devaluations), and price deflation accentuate financial crisis.
These two conditions in the market also have wide reaching effects like low consumer confidence, disruption in retirement plans, and fall in stock prices. These are the negative aspects, which are common for both.

Thus, regardless of which scenario persists, the ultimate effect is negative, and ample time is required for the revival of economic conditions.