With markets flashing warning signs that the global economy is teetering on a cliff’s edge, the question of when a recession will hit is becoming one of when, rather than whether. A global recession is a contraction in economic activity that leads to declines in employment, investment and consumption.
Economic recessions are caused by a variety of factors, including supply-chain disruptions, financial crises and resource shortages. But recessions are often triggered by a psychological shock, such as the loss of confidence in the financial system, which can have cascading effects on businesses and consumers. The Great Recession of 2007-2009, for example, was triggered by a bursting credit bubble that reduced the purchasing power of currencies around the world.
Recessions can last anywhere from a few months to several years, and the severity of their impact varies from country to country. Some countries are more susceptible to recessions than others. This is based on the size of a country’s market and the sophistication of its financial markets, as well as its trading relationships with other countries.
Recessions are hard to predict, but in the past they have usually followed a pattern. For example, the first two global recessions of the 1980s were preceded by oil shocks and monetary tightening in advanced economies. The third global recession, in the fall of 2008, was sparked by a combination of factors, including the collapse of a financial sector and an economic slowdown in emerging economies.
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