A global recession is a contraction in economic activity across multiple economies that have significant trade and investment links. The definition of a global recession differs from national ones such as the United States’, where a period of two consecutive declines in GDP is required for a downturn to be declared by the National Bureau of Economic Research (NBER). While NBER acts as a US authority in declaring and dating business cycles, the IMF plays a similar role worldwide. In addition to a drop in real gross domestic product, the IMF requires a deterioration of several other economic indicators including trade, capital flows, industrial production, oil consumption, unemployment, per-capita investment, and consumer spending.
In a global recession, businesses and consumers become less willing to spend, and governments become reluctant to borrow or invest in their economies. This slowdown often leads to lower incomes, higher unemployment, and reduced economic output in many countries and regions.
The causes of global recessions vary, but the most recent global financial crisis was triggered by the collapse of Lehman Brothers in September 2008 and the failure or near collapse of a number of other financial firms around the world. A decade before that, the Asian financial crisis resulted from overly ambitious investments in factories in China by companies that could not pay back their debt.
With the world’s largest economies in a state of high uncertainty, many analysts are now raising their forecasts for a global recession. For example, Mark Zandi, chief economist at Moody’s Analytics, now sees a 40% chance of a global recession in 2025, up from 15% in December 2018.