What is the difference between recession and depression? What are the pros and cons of each?

 Recession and depression are two economic concepts that overlap with each other and cause confusion for many. In general, stagnation and depression are always associated with a bad economic situation, but what most do not know is that both stagnation and depression have many positive effects as well. What is the difference between recession and depression?

 There are many examples that show the difference between both depression and stagnation, and we can mention a simple example that the average consumer can understand. For example, when one of your relatives loses his job, the financial burden on you will be lighter, which is called stagnation, but if you are the one who lost his job, the financial burden will be heavier, which is called It stagnates.

 First, we need to understand what are the causes of their occurrence? And how to create positive and negative effects on the general economy? To gain a greater and broader understanding of how it works and how to survive it.

 The difference between a recession and a depression

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 What is stagnation? There are two well-known definitions of a recession, one of which defines it as two consecutive quarters of negative economic growth. The second (according to the US National Bureau of Economic Research) describes a recession as a significant decline in national economic activity that lasts for months. Many economists believe that a recession is a normal part of an economic cycle of ups and downs.

 How does it happen? The growth of any economy depends on the balance between production and consumption of goods and services. The more the economy grows, the consequently the volume of consumer income and spending rises. But because the world is not perfect, at some point economic growth begins to slow, and this decline may be caused by a simple factor such as an increase in supply, meaning that manufacturers are producing at rates beyond what is required.

 When that happens, the demand for those goods declines, which leads to slower profits, lower incomes, and lower stock markets.

 Historical examples Since the mid-1850s, the United States has gone through 32 recessions, according to data from the US National Bureau of Economic Research, most of which varied in length, but the average recession during those periods approached 10 months.

 The shortest recession lasted for 6 months (from January 1980 to July of the same year), while the two longest recessions lasted for about 16 months (from November 1973 to March 1975 and then July July 1981 to November 1982).

 depression

 What is a depression? It is simply a severe economic catastrophe in which real GDP decreases by at least 10%. A depression is much more severe than a recession, and its effects can last for years, and in fact it is a nightmare for business, banking and manufacturing activities.

 How does it happen? A depression occurs when several factors come together at the same time. These factors include overproduction and low demand, which creates a state of fear that is reinforced and expanded by the panic of investors and companies. The oversupply and fear experienced by investors are leading to a sharp decline in corporate spending, as the economy begins to slow, unemployment rises, wages are reduced and the purchasing power of consumers is eroded.

 Historical examples: According to the above definition, there are many cases that can be considered recessions, such as: the decline of Indonesia's GDP during 1998 by 18%, and the decline of Thailand's GDP by 15% during the two years ending in the first quarter of 1998.

 The same applies to Malaysia, when its GDP fell by 11% in the year to December 1998, and Finland, whose economy shrank by 10.6% between 1990 and 1993, due to the fall of its main trading partner at the time, Soviet Union.

 The pros and cons of recession and economic depression

 Depression and economic stagnation are characterized by the presence of many negative and positive consequences that follow them, at the level of the general economic system. which we can use to gain a greater and broader understanding of how it works and how to survive it.

 The negative effects of recession and economic depression:

 1- High unemployment:

 Generally, high unemployment rates are a classic sign of both recession and depression, leading to lower spending by consumers and job cuts by companies to counteract the decline in profits. The difference between a recession and a depression is that the unemployment rate in a recession is less severe than it was in a depression. For example, the unemployment rate of a recession is in the range of 5 to 11%, and in contrast to the Great Depression (1929-1933) the unemployment rates became from 3% to 25% in the year 1933.

 2- economic downturn

 Both stagnation and depression lead to a significant deterioration in the economy, during periods of growth, companies keep increasing the supply to meet the needs of consumers and what is required, but at some point the supply will be more than what is required in the economy and when this happens, the economy slows with slowing demand, stagnation and depression is a stage to remove all excesses existing in the economy, but this process is painful and may be affected by many.

 3- Fear

 Recession and stagnation make consumers a lot of fear. With the slowdown in economic growth and high unemployment rates, consumers may fear that things will not improve soon, which tends to reduce spending, which also affects the slowdown of the economy further and exacerbates it.

 4- Decrease in the value of assets

 The value of assets and property declines during periods of recession and depression due to slowing profits as a result of the decline in economic growth, and this leads to a significant decline in stock prices due to slowing profits and negative expectations for companies, in addition to the decline in new investments in the economy may also affect many assets of people.

 Positive effects of recession and economic depression:

 1- Get rid of surplus inventory

 Economic decline allows the economy to remove economic excesses, and during this process the inventory of supply is reduced to more normal levels and allows the economy to experience growth again as demand for products grows.

 2- Achieving an economic balance

 Recession and depression both help to maintain balanced economic growth. If the economy grows without control for several years, this leads to uncontrolled inflation through stagnation or depression, forcing consumers to reduce spending in response to lower wages to create a better situation in which the economy can grow at normal levels.

 3- Create buying opportunities

 In difficult times it can create opportunities to buy products on a large scale, especially on huge assets and properties, where the path of the economy is running, the markets will adapt to the economic expansion, and this provides investors with an opportunity to earn money as this decrease in prices moves until the prices of these properties are normal .

 4- Changes in consumer attitudes

 Economic hardship can create a new direction of thinking for consumers. Like stopping to live beyond their means as they are forced to live within their real income, and this causes a kind of savings that contributes to the national saving rate allowing for increased investments in the economy.