Many adults under the age of 35 have never experienced a long economic slowdown or downturn, such as that experienced in 2020 during the pandemic and in 2009 after it. That means they may not know what to expect when the economy enters a global recession.
In simple terms, a global recession occurs when synchronized economic contractions occur in multiple interconnected economies. The impact on individual countries varies based on the extent of their connections to and dependence on the global economy.
A global recession is typically associated with sharp declines in macroeconomic indicators, such as industrial production, employment and real income. This translates into an overall drop in GDP, which often lasts for more than a year. During recessions, consumer spending declines and companies are less willing to invest. These tend to overlap with drops in international trade as exports and imports are curtailed. The drop in global growth inevitably leads to higher interest rates, which drives up financial market volatility.
The risk of a global recession is heightened by elevated geopolitical risks and elevated oil prices, which could dampen business investment, household consumption and global demand for goods and services. In addition, global monetary policy has been tightened for some time now. This combination of factors has led to an inversion of the US 10-year minus 2-year yield spread, a classic indicator for an impending global recession. Inflation has also increased, pushing households toward saving and making it harder for them to afford new investments.