A global recession is a decline in global GDP growth for an extended period of time, generally defined as two consecutive quarters. The IMF definition of a global recession is more expansive than the NBER’s, including a decline in trade, industrial production, per-capita investment, and per-capita consumption. It also includes financial markets, and a deterioration in global risk sentiments.
While the exact reasons for a global recession vary from country to country, they typically stem from economic shocks that affect a wide range of countries and industries. These events can cause consumers to delay spending, businesses to invest less, and lenders to tighten credit. They can also lead to political instability in a region or cause a spike in oil prices. In addition, the interconnectedness of global economies means that when a country experiences an economic slowdown it can quickly spread to its trading partners.
The severity of a global recession depends on several factors, including the size and sophistication of a country’s financial markets and its trading relationships. For example, the financial crisis of 2008 caused global GDP to plummet, although real GDP in most advanced countries did not bottom until 3 1/2 years later. During that same episode, many governments implemented fiscal and monetary stimulus measures to inject trillions of dollars into the economy in an attempt to resuscitate it. Despite the success of these policies, the global economy is still grappling with lingering scars from that episode.
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