Root causes of an economic depression

In this video we look at the waves that can hit an economy and bring about a depression.

Will support policies be enough to mitigate the worst of the economic damage?

What can cause recession to become depression?

• Scale of the shock hitting the world economy is huge
• Huge surge in unemployment claims
• Steep fall in output in supply-chain businesses
• Sharp drop in confidence hitting planned investment
• Negative multiplier effects will amplify size of the downturn
• Economic crisis might prompt a return to protectionism
• Surge in business failures due to high levels of debt and collapse of cash-flow

Sudden stop

• Shop, leisure & factory closures
• Stay at home
• Social distancing

Collapse in employment

• Steep rise in jobless totals
• Fall in wage income
• Drop in business and consumer confidence

Negative multiplier effects

• Delayed spending
• Increased precautionary saving
• Drop in orders for components, raw materials

Businesses cut investment

• Fall in orders for new equipment
• Supply-chain industries retrenching on investment

Growing business failures

• Increased banking sector risks from bad debts
• Reluctance of banks to lend to SMEs & others