What’s the difference between a recession, a depression and a cost of living crisis?
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A recession is a sustained fall in economic activity. In other words, less stuff is being done, less money is moving around the economy. For regular people it almost always means falling incomes or increasing unemployment.
Technically it’s normally defined as two consecutive quarters of negative economic growth – so if the economy shrinks for two quarters in a row.
A depression is basically an even longer period of economic problems. It doesn’t have the same technical definition, but an economy that shrinks or shrinks and fails to grow again for, say, a year or so is likely to be regarded as in a depression.
A cost of living crisis is a bit difference. I’m not sure the origin of the phrase; I can only recall it being used in recent years in the UK, but it probably goes back further. It’s more used as a political term than one that comes out of academic economics or history.
“Cost of living” refers to the prices of everyday things for consumers – for regular people. Its change is measured by the inflation rate. Although sometimes people talking about a cost of living crisis will focus on costs that hit the less well-off more: eg. they pay more attention to the costs of basic food and housing and less to flights and hotels.
A cost of living crisis is when those prices rise much faster than people’s incomes, and people struggle to afford the things they’re used to – or even to afford the basics of a decent life.
This can happen without some of the features of a recession. The economy might grow while prices rise rapidly and incomes stagnate. Unemployment could go up a lot without a rise in prices or a fall in incomes for those still in work. In the UK we’ve technically avoided a recession, but for many people their standard of living has got worse because prices have gone up faster than their income.
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