There are a number of reasons why global recessions take place. Many of them are linked to sharp increases in the prices of inputs such as oil, which push up the overall price level and cause demand for goods and services to decline. Recessions can also be triggered by financial market problems. A well-known example was the collapse of Lehman Brothers in 2008, which was followed by the failure or near-failure of a number of other institutions and a general breakdown of confidence. As investors rushed to sell their assets, the supply of funds to businesses and households fell sharply, causing investment and consumption to decline.
It is hard to identify a global recession, which is why it is so important for policymakers to take action early when the signs appear. The main indicator is that a number of major countries experience a slowdown in economic growth, but there are a number of other warning signs. These include a bloodbath on stock markets (with even big names like HSBC and Standard Chartered suffering) and steep falls in commodity prices (particularly for copper and oil), which are considered barometers of global economic health.
In addition, high debt levels in advanced economies can cause recessions when interest rates rise and investor capital flows to other markets shift toward safer assets. This can make a global downturn much harder to handle than if it was limited to one or more countries.