Economic Depression – Definition

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

US-real-economic-growth-depression

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.

us-unemployment-1930s-great-depression

Related concept

  • 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

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