What is the difference between a recession and an economic depression?

Some expectations are too pessimistic, but nothing is unlikely at the moment.

6 min read

What is the difference between a recession and an economic depression?
What is the difference between a recession and an economic depression?

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By Antonio Sandoval

Some of the expectations of those tracking the performance of the national, regional, and global economies point to a sharp collapse in global growth rates. Everything is worrying on this matter, but especially the most industrialized countries in the world because they always set the standard in the world economy.

In this regard, some analysts’ initial expectations point to the possibility of one U.S. GDP will decline by up to -4 percent per year in 2020.

If so, we would face a real collapse of the world’s largest economy, with all the ramifications for the rest of the world, not to mention the countries most closely linked to this nation, including, unfortunately, Mexico. However, some analysts also point out that a recession is not beginning that is more than imminent and that the International Monetary Fund (IMF) itself has already taken for granted, but as something much worse. These analysts say the world economy is gradually approaching a depression; The word immediately takes us back to the 20s and 30s of the last century with the global economic crisis.

Sure Nobody knows exactly what will happen, it is very difficult to determine, but to clarify the picture a littleIt would be interesting to know some of the differences between a recession and an economic depression.Dollar interest rates


Recession versus depression

Before we talk about numbers, we can point them out as briefly as possible The big difference between recession and depression lies in the length of the crisis. Basically, a depression is a long-term recession that is sure to have devastating effects on the economy or the economies that are suffering from it. A recession can last months, or even some analysts speak of recessions of up to 2 or 3 years, but with ups and downs in growth rates, i.e. GDP can rise or fall, although it generally remains in a negative zone.

On the other hand, time is a critical factor in depression since it takes more than two years and the worst part is that the growth rates keep fallingSo when graphing the GDP performance of the affected economy, the line keeps getting lower, which clearly indicates the economic depression. In general there aren’t any specific time periods, but it’s more or less what history has shown. It is also important to clarify that in its history, which began in 1929 and lasted nearly a decade, humanity has only seen one Great Depression., In the last century. However, some regional economies and countries have experienced depression. For example, Africa in the 1980s and 1990s; an important part of Latin America even in the 80s of the last century And right now Venezuela is going through a deep depression with everything and is the country with the largest oil reserves in the world. Commentary aside, their politicians have been destroying this nation for several years.


Image: Adobe Stock

When is it in a recession and when is it in a depression?

As mentioned earlier, there are no globally accepted formulas or numbers that indicate a recession and / or economic depression. Based on international experience It is said that economic depression occurs when GDP falls 10 percent or more. Obviously, the closer GDP performance approaches this rate in a recessive period, the greater the risk.. If we look at the above, the world would not go into a depression this year, at least not from the United States and due to the extent of its GDP decline, but the situation in Europe and much of the Asian economies is unpredictable.

By doing Great Depression of 1929s figures were terrible and in all their severity showed how devastating this phenomenon is; According to historical data from companies like the US Department of Labor, international trade declined by an average of 60 percent during this period. Unemployment in the United States rose to 25 percent and reached 35 percent in some countries, largely due to the fact that the world’s cities, which relied on heavy and construction industries, practically came to a standstill. Agriculture and rural areas suffered from falling harvest prices. In the face of falling demand, the areas dependent on primary sector industry with few alternative sources of employment were hardest hit.dollar

Image: Adobe Stock

In the United States, for example, by 1932 gross domestic product (GDP) had fallen by 27 percent and industrial production by 50 percent.. The investment was not even enough to maintain the existing facilities. Under this pressure, the banking system finally collapsed. As we know, the recovery did not begin until 1940, and that was because the United States entered the war.

Hopefully analysts who are already talking about a depression are completely wrong, for the good of the world economy and all that that entails.

opinion:: Will this be a great recession or a great depression?

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