As the global economy slows, economists are watching for signs of a recession. The latest Chief Economists Outlook from the World Economic Forum suggests that there are reasons to be concerned, with half of the chief economists surveyed expecting a weaker global economy next year.
The IMF defines a global recession as multiple economies experiencing a decline in growth for more than a few months, accompanied by deteriorating trends in industrial production and a reversal of exports and investments. While national recessions can have a range of causes, synchronized global downturns tend to be caused by financial shocks or events that trigger fears of another financial crisis.
Recessions usually result in falling employment, higher inflation and fewer people spending money. As a result, companies may struggle to pay their staff and find it harder to buy raw materials needed for production. This can lead to a number of other problems, such as increased unemployment for school leavers and graduates, or higher prices for essential goods like food and energy.
In the case of a global recession, these issues are more likely to affect the economies of larger countries and their regional trading partners. This can lead to a ‘domino effect’, where the problems of one country quickly spread to other countries in the region.
The failure of Lehman Brothers in September 2008 and the ensuing financial crisis were a key example of this. The global financial panic saw markets around the world collapse and investors withdrawing funds from banks and investment funds in fear of further losses. This led to the reversal of lending in many markets, which made it hard for businesses and households to access loans.
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