A global recession is a synchronized slump in economic activity across multiple economies. They tend to last a few months or years and are typically accompanied by a sharp drop in GDP. This can lead to a decline in industrial production, oil consumption and per-capita investment. It also often results in higher unemployment and mild inflation as demand for goods and services is reduced.
Unlike in the US where recessions are officially declared based on a definition set by the National Bureau of Economic Research (NBER), the IMF has a number of criteria to identify when a global recession is occurring. For example, they look beyond the duration of a decline in GDP and include other key indicators such as international trade, industrial production, oil consumption, unemployment rates and per-capita investments.
In the wake of the COVID-19 pandemic, global stock markets fell steeply and many people were concerned about a possible recession. However, falling share prices don’t necessarily mean that economic misery is on the horizon – they can simply reflect a fundamental reappraisal of future profits for companies.
But if growth does slow, the world will need to take steps to address its vulnerabilities and avoid another global economic crisis. This will probably require a renewed round of quantitative easing by governments in an effort to stimulate the economy. A McKinsey survey of business leaders finds that executives believe political transitions and geopolitical instability will most impact global economic conditions in the coming years.