What's the difference between a recession and a depression? And could Twitch have suffered from the latter?

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What's the difference between a recession and a depression? And could Twitch have suffered from the latter?

When it comes to economic downturns, there are several terms used to refer to them. Two of the most commonly heard terms are recession and depression. But what is the difference between the two? And could streaming service Twitch have suffered from a depression? In this blog post, we will examine the differences between a recession and a depression, and explore whether Twitch could have suffered from a depression.

Defining a recession

A recession is defined as a significant decline in economic activity that lasts for more than a few months. It is typically marked by decreases in employment, personal income, business profits, and spending. During a recession, people tend to cut back on their spending, leading to a decrease in economic output. While there are no set criteria for determining when a recession has begun or ended, economists typically measure recessions using gross domestic product (GDP) figures. When GDP growth is negative for two consecutive quarters, a recession is usually considered to have started.

Recessions can have a wide range of causes, including changes in government policy, rapid increases in interest rates, and over-expansion of credit. Whatever the cause, recessions are often accompanied by stock market declines and increased unemployment.

Recessions tend to be short-lived; typically lasting six months or less. However, they can have long-lasting impacts on businesses, families, and individuals. For example, during the Great Recession of 2007–2009, unemployment peaked at 10%, with many households losing their homes and businesses going bankrupt.

Defining a depression

A depression is an economic downturn that is much deeper and longer-lasting than a recession. It is characterized by a sharp decline in economic activity, high unemployment rates, and significant drops in consumer spending, business investment, and production. During a depression, the economy typically experiences a period of deflation (declining prices) as well as a decrease in the money supply due to reduced production and consumption. This can lead to a credit crunch as banks become increasingly reluctant to lend money. The Great Depression of the 1930s is the most well-known example of an economic depression.

Depressions are usually caused by a combination of external factors, such as wars, political instability, and trade restrictions, as well as internal factors like excessive consumer debt, financial speculation, and mismanagement of fiscal policy. It can take years for an economy to recover from a depression. Governments often implement fiscal stimulus programs (such as increased government spending and tax cuts) in order to jumpstart the economy and prevent a further decline.

Could Twitch have suffered from a depression?

It is important to note that a recession and a depression are two different economic events, but the two terms are often used interchangeably. A recession is defined as a period of negative economic growth lasting two or more consecutive quarters, while a depression is a much more severe form of recession with an extended period of significantly reduced economic output, high unemployment, and falling prices (deflation).

In recent years, the video streaming platform Twitch has become increasingly popular, especially amongst the younger demographic. However, the company did suffer from a recession in 2020 due to the global pandemic and subsequent economic downturn. This resulted in Twitch having to adjust their business model and focus on user-generated content instead of advertising revenue, resulting in a significant reduction in profits. 

While this situation may have seemed dire for Twitch, it does not qualify as a depression. Despite experiencing a recession in 2020, the company was able to recover relatively quickly and reported an increase in monthly active users and revenue by 2021. This indicates that Twitch was able to survive the recession without being put into a prolonged state of economic despair, which is indicative of a depression. 

Overall, it is safe to say that Twitch did not suffer from a depression due to the fact that their economic struggles were not prolonged enough to be classified as such. Despite suffering from a recession in 2020, Twitch was able to recover relatively quickly and increase its profits. As such, it can be concluded that Twitch did not suffer from a depression.