An economic depression suggests a very serious recession. A period of significant falls in output and negative economic depression. There is no absolutely agreed definition. But
- A depression would be considered to be a deep and long-lasting recession, with output falling for at least 12 months and GDP falling by over 3%
A mild recession, with a small fall in GPD (of say 1%) wouldn’t be considered a depression by economists. Though in everyday use, people may refer to the economic downturn as a depression.
Harry Truman gave a famous quip about the practical meaning of depression.
It’s a recession when your neighbor loses his job; it’s a depression when you lose your own.”
― Harry S. Truman
Features of a depression
A depression would involve:
- Very high levels of unemployment (In great depression, unemployment often rose to 20% or more)
- Falls in real wages
- Very low inflation and possibly deflation
- Falls in asset prices, such as the stock market and house prices.
- Significant fall in business and consumer confidence.
Examples of Depressions
US economy 1929-32
In the three years of 1929-32, the US economy fell by nearly 30%.
The economy rebounded in 193-36, but to many people, the economy still felt like it was in a depression because unemployment was so high.
- Deflation. This involves a fall in the general price level and is very rare. But, when prices do fall it usually causes a big fall in spending.
Further reading on depressions