Economic collapse is an extremely rare and disruptive event that results in a prolonged and extended freefall of the economy. It is much more severe than a recession or market crash and is often caused by a combination of factors, both internal and external. An economic collapse implies a widespread economic downturn as banks and businesses become insolvent, leading to massive losses in jobs, income and savings.

The most recent example of a major economic collapse is the Great Depression of the 1930s. At its worst, unemployment in the US topped 25%, roughly 25 million people struggled to feed themselves and many banks closed their doors. While it can be argued that some of the same underlying causes were in play leading up to and during the Great Depression as are in play today, the term economic collapse typically requires something more severe than a typical recession.

In the wake of the 2020 COVID-19 pandemic, many experts are raising alarms about an imminent economic collapse. This assessment appears to be based on the idea that the steep and sudden stop to the global economy will trigger a domino effect of massive defaults, insolvencies and bankruptcies that are too large for existing governments and agencies to cope with.

An economic collapse leads to drastic drops in production, consumption and investment, and extreme levels of unemployment and poverty. It can have far-reaching consequences, especially in countries that are heavily reliant on foreign trade and international markets. Stock markets crash, banks become insolvent, companies and governments default on their loans and investments, and people with limited savings become increasingly vulnerable.

In some instances, an economic collapse can lead to a breakdown of the social order due to mass poverty, hunger and political unrest. Governments can be forced to devalue their currency, resulting in a further deterioration in the cost of living. In the worst-case scenario, an economic collapse causes mass starvation and death.

Economic collapses are the result of a complex mix of factors that lead to a rapid collapse in the confidence of people and markets in the stability of the government and economy. Therefore, governments and central banks should continuously review their policies and seek to ensure economic stability and growth in order to avoid an impending economic collapse.