During a global recession, economic activity in a large number of countries declines simultaneously. These declines can be the result of a dramatic decrease in the prices of assets such as stocks and real estate, or they may be triggered by an overly rapid increase in debt accumulation by households and corporations. Regardless, they typically lead to falling investment and consumer spending, which causes a decline in economic output.
The International Monetary Fund defines a global recession as a sustained decrease in per-capita gross domestic product (GDP) for two consecutive quarters. While this criterion is the most widely accepted definition, it does not take into account all of the factors that make up a recession. In addition to a drop in GDP, the IMF considers other macroeconomic indicators such as trade, capital flows, industrial production, oil consumption, unemployment rate, and per-capita investment and consumption.
What’s more, a global recession can be more severe than a national one, as trade relations and financial systems help to spread the impact from country to country. This is known as contagion. The financial sector often serves as an amplification amplifier in this context, especially when it is overly exuberant as it is now. This is why UBS recently said there is a 93% chance the US will enter a recession this year. It bases this assessment on the fact that the US economy is relying heavily on debt and speculation rather than concrete growth drivers, which will be hard to sustain once those bubbles burst.