[TL;DR]

• A recession is the economic downturn of a country that lasts for months.

• Depression is a recession lasting longer than three years and giving a 10% drop in annual GDP.

• Recession and depression are determined through the economy's Gross Domestic Product, GDP.

• A recession is characterized by high unemployment, falling prices and sales, and negative GDP.

• Depression is characterized by bankruptcies, bear markets in stocks, and low inflation.

• A recession takes at least six months, but it will be deemed a depression if it drags on.

• Depression is much more drastic than a recession.

Introduction

Recession and depression are terms that are commonly used to describe a fault in the economy of a nation or country.

The NBER, National Bureau of Economic Research, describes recession as a "fall in economic activity spread across the economy and prolonged for more than a few months." It represents the period in which an economy is shrinking rather than expanding.

A recession is characterized by:

• High unemployment

• Falling prices and sales

• The stock market plummets

• Poor Wages

• Negative Gross Domestic Product (GDP)

On the other hand, depression is a severe recession that lasts three or more years and is accompanied by a huge economic downturn, including a GDP drop of at least 10%.

Depression is generally characterized by:

• Increases in unemployment

• Diminishing productivity

• Bear market in stocks

• Consistent negative GDP trend

• Bankruptcies

• Reduced global trade

• Prolonged price volatility and falling currency values

Although recession and depression both refer to periods of economic downturn, they don't have the same implication. Depression is more severe and occurs more rarely than a recession.

Here are the key differences between depression and recession.

Source: bitcoin.com

Recession vs. depression: the major differences

During a recession, there is unemployment and a decrease in production, while depression is a more drastic state marked by a sharp decline in industrial output, widespread unemployment, and a reduction in international trade and capital movements.

Depression lasts for a long time—in years, but recession lasts for a shorter period.

While recession is marked by two consecutive quarters of negative GDP growth, depression is marked by a 10% or more loss in GDP over one year.

Depression is not common because it is only recorded when an extreme fall in the economy lasts for years, but recession occurs more often when GDP drops for at least two quarters.

Depression may affect several countries simultaneously, but recession is geographically limited to one country or nation.

Generally, depression is more destructive, and it takes much longer to recover from depression than a recession.

What Causes a Recession or Depression?

Many things can trigger a recession, including war, widespread disease, inflation and deflation cycles, and abrupt economic changes during a pandemic. Also, plummeting asset prices such as real estate and stocks, a slowdown in production, stagnant wages, or reduced income in the labor market can cause a recession.

For depression, it doesn't have a particular cause; but can result from a compound of declining consumer demand and confidence to the point that companies are forced to cut costs. This leads to unemployment, prolonged economic faults, and eventually depression.

Notable Recession and Depression Periods in History

The Oil Embargo Recession -occurred from November 1973 to March 1975. This recession lasted for 16 months, with a 3% GDP decline and an 8.6% unemployment rate.

The Iran and Volcker Recession -occurred from January 1980 to July 1980. This recession lasted for Six months, with a 2.2% GDP decline and a 7.8% unemployment rate

Double-Dip Recession(Part 2) -occurred from July 1981 to November 1982. This recession lasted for 16 months, with a 2.9% GDP decline and a 10.8% unemployment rate.

The Gulf War Recession -occurred from July 1990 to March 1991. This recession lasted for eight months, with a 1.5% GDP decline and a 6.8% unemployment rate.

The Dot-Bomb Recession -occurred from March 2001 to November 2001. This recession lasted for eight months, with a 0.3% GDP decline and a 5.5% unemployment rate

The Great Recession occurred from December 2007 to June 2009. This recession lasted for 18 months, with a 4.3% GDP decline and a 9.5% unemployment rate.

The COVID-19 recession occurred from February 2020 to April 2020. This recession lasted for two months

One notable instance of a depression period was the "Great Depression," which occurred between 1929 and 1941. The Great Depression is known to be the most prolonged economic downturn ever in the industrialized globe.

Conclusion

Although Economic recession & Depression have been known to be caused by negative disruptions in the balance between demand and supply, i.e interest rate and inflation, other variables like war, disaster, policy, or economic prosperity cal also impact the economy negatively.

Despite the numerous prediction of recession in 2022, the situation seems complicated as there has also been high job growth, labor shortage amidst high inflation, and massive lay-offs.

Author: M. Olatunji, Gate.io Researcher

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