A global recession is a contraction in world economic output and spending. It typically occurs when multiple major economies contract simultaneously. Because these economies have interconnected markets and financial systems, a slowdown in one economy often triggers retrenchment by its trading partners. For example, when the US economy slowed down during the COVID-19 pandemic, it led to lower consumer spending and higher unemployment across the globe.
Recessions occur when investment and consumption decline for several months. As demand for goods and services drops, businesses may lay off workers, leading to higher unemployment and lower household incomes. The longer a recession persists, the harder it is to reverse its effects on employment and output. In extreme cases, a prolonged slump in output can lead to an economic depression.
Although there is no official definition of a recession, the National Bureau of Economic Research defines it as a significant drop in activity that spreads widely throughout an economy for more than a few months. The IMF uses a more open definition, including a decline in production and other economic factors, such as trade, capital flows, industrial output, oil consumption, and per-capita investment and per-capita income.
As the global economy recovers from COVID-19 and the wars in Ukraine and Middle East, many economists believe the risk of a worldwide downturn has receded. But, as this article explains, there are reasons to remain vigilant about the possibility of another downturn, particularly if current trends continue.
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