What is a Global Recession?

A global recession is a prolonged period of decline in economic growth across the entire world economy. It is a serious economic setback that can have profound effects on individuals and businesses. Global recessions are less common than national ones, and the impact varies from country to country depending on its trading relationships and the sophistication of its markets and investment efficiency.

A worldwide economic contraction typically starts in one major country, resulting in reduced output, employment and real incomes. It spreads through the financial system as investors become risk-averse and bond yields rise. This can cause banks to tighten lending standards and reduce borrowing by businesses, which in turn limits business investments and consumer spending. The recession can also trigger a chain reaction of events, such as the stock market crash in October 2008 and the bankruptcy of Lehman Brothers that triggered a wave of bank failures.

As the economic slowdown becomes widespread, it can trigger social unrest in developing countries. For example, disgruntled youths have protested over minor increases in bus fares in Brazil and higher rents in Tel Aviv. It can also lead to political instability and even civil war.

While the world is still recovering from the global financial crisis that began in 2007, many experts are warning of a potential downturn. Some of the reasons cited include the COVID-19 pandemic and related economic shutdowns, aggressive interest rate hikes by central banks and the soaring price of key commodities like oil.