Recession, depression - Methodology

Like of many economic phenomena, there is no standard definition of recession either. Generally, recession is a period of reduced economic activity. Problematic is, what indicators should be used to identify recession.

A quarter-on-quarter decrease in quarterly gross domestic product (GDP) in real terms at least in two successive quarters is called technical recession.

The „technical“ definition has its opponents who mainly object that it ignores the other economic variables such as unemployment or consumer confidence. A wider definition of recession says that recession is a period of reduced economic output and employment (i.e. in otherwise the same circumstances of growing unemployment).

According to another – more general – definition, recession is a period starting when economic activity has reached its peak and begins to slow down and ending when economic activity has bottomed out and begins to accelerate.

Also depression is a frequently used term. What is the difference between recession and depression? The difference is usually understood in terms of quantity. Recession exceeding a certain rate (a GDP fall of more than 10%) is called depression. A classic example of depression was the great depression of 1929-1933 in the United States when GDP plummeted by nearly 33%. The United States experienced another period of depression in 1937-1938, with GDP falling by more than 18%. There was no depression in the United States in the post-war period: the highest GDP drop occurred in 1973-1975, reaching roughly 5%, which was within the recession band.