A global recession is a contraction in economic activity that is felt around the world. It typically involves falling GDP growth, falling investment and rising unemployment. A global recession is distinct from a US recession, which is typically marked by slower domestic GDP growth and lower consumer spending, but not a simultaneous fall in the nation’s stock market.
The risk of a global recession is higher because global economies are more closely linked than ever before through trade, capital flows and a range of other factors. As a result, slowing economies can quickly affect their regional trading partners. This phenomenon is called synchronization.
Recessions can be caused by a wide range of issues, from war to natural disasters to financial crises and political turmoil. In some cases, a recession is triggered by a bubble that bursts, like the one created by the tulip mania in the 17th century and the housing market crash in 2008.
In other instances, the root cause is more subtle. For example, the global recession of the mid- to late 1970s was triggered by an oil crisis. An OPEC embargo on US oil sent prices skyrocketing and caused recessions in most advanced industrialized countries. In many of these recessions, high inflation also accompanied the decline in GDP growth and employment. This combination is known as stagflation, and it is a particularly unpleasant type of recession. The COVID-19 pandemic, which resulted in huge job losses and reduced business activity, was another case of synchronized recession.