A global recession refers to a broad period of economic decline, characterized by stagnating or shrinking GDP growth and rising inflation and unemployment. In the United States, it can also result in a sharp slowdown in investment and household spending. It can last for a year or more, and it often coincides with a drop in international trade as imports decline more rapidly than exports.
Global recessions can have many causes, and their impact varies from country to country. But in general, they tend to occur because of a series of overlapping events that lead to a loss of confidence among consumers and businesses. This is why investors, policymakers, and scholars pay close attention to escalating global uncertainty.
The global financial crisis (GFC) started when US house prices began to fall in mid 2006, and the number of homeowners and mortgage-holders who were unable to repay their debts rose quickly. These factors combined to bring down global stock markets and stoke fears about the health of the economy, which eventually led to a recession.
Since the mid-1970s, five global recession episodes have coincided with US recessions, suggesting that the economy’s health is influenced by events beyond its borders. However, the synchronization of recessions across large economies is difficult to observe in real time, because they are most apparent on the low frequency data used by policymakers and investors. This article uses behavior-over-time charts and causal loop diagrams to describe the systemic influences of a global economic crisis, and recommends ways in which policymakers and investors can prepare for them.