Home Finance UK recession news: When does a recession become a depression?

UK recession news: When does a recession become a depression?

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Recessions happen when different economies experience negative growth. Countries around the globe have faced financial hardship in recent months as coronavirus pandemic forced businesses to close, drove up unemployment and diminished spending. But when does a recession become a depression?

The UK economy has likely descended into the greatest recession of any major world economies according to leading economists.

The economy has suffered the biggest slump on record, shrinking 20.4 percent compared to the first three months of the year.

It is the first technical recession since 2009.

This crash in GDP in this quarter is the worst since quarterly records began in 1955 and following a 2.2 percent decline in the first quarter.

This fall in UK statistics is not as bad as the 22.7 percent decline in Spain, but is around twice the size of contractions in Germany and the US.

READ MORE: Furlough UK: Will furlough be extended as UK dips into recession?

When does a recession become a depression?

The Great Depression is the benchmark for depressions but now many are wondering if the current recession could become a depression.

A depression is defined as s a prolonged and deep recession leading to a significant fall in output and average living standards.

A depression is where real GDP falls by more than 10 percent from the peak of the cycle to the trough.

A depression is primarily caused by worsening consumer confidence that leads to a decrease in demand, eventually resulting in companies going out of business.

When consumers stop buying products and paying for services, companies need to make budget cuts, including employing fewer workers.

This downward trend in terms of economic growth has in 2020 been caused by the coronavirus pandemic.

This has led to a drop in spending and a rise in unemployment.

The ONS said the collapse in output was driven by the closure of shops, hotels, restaurants, schools and car repair shops.



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