You must have read the arguments of economic analysts regarding whether currently the UK economy is facing recession or depression. Actually, both terms imply the same thing. They refer to decline in economic activity. The basic difference is in the time duration for which the slowdown continues and the extent of decline.
Technically, negative GDP for two or more quarters signifies recession and when this trend continues for up to two years, it is known as depression. Also, the decline in GDP in depression is more than 10 percent whereas in recession it is lesser.
Nowadays, GDP alone is not used to determine the economic situation of a country. There are various other parameters that are taken in to account. Some of them are unemployment rate, consumer spending and Index of Industrial Production (IIP). In the second quarter of this year, the GDP of the UK declined by 0.6 percent, IIP fell by 0.1 percent and consumer spending fell by 0.6 percent.
Recession is more common than depression, as mild slump in the economic activity keeps happening due to various reasons from time to time. Countries usually come out of recession in less than eighteen months. On the other hand, depression is severe and more difficult to overcome.
Examples Of Recession And Depression
The Great Depression of 1930 is well known. The GDP of UK fell by 10 percent at that time. This depression lasted for 10 years. United Kingdom has experienced recession thrice in the past 40 years besides the current one. The first one was in mid-1970s, the second in early 1980s and the third in early 1990s.
We have been in recession for around 6 quarters now and it is still difficult to predict when we will come out of the woods. The government has reduced interest rates so that people can spend more and businesses can produce more. Since the main reason for this recession is the financial meltdown caused by bad credit, banks are still hesitant to lend, which is further exaggerating the problem. Even as the GDP picks up once more, hardening in interest rates is expected.