Recession talk is getting louder on Wall Street, and forecasters are citing signs that an economic downturn may be close at hand. In March, Goldman Sachs raised its probability of a global recession to 20%. Investors’ confidence has plunged to a nine-month low, while the number of Americans who expect their incomes to decline in the next year reached its highest level since 2009.
While there is no “set-in-stone” definition of a global recession, it generally involves a prolonged period of contractionary economic growth that affects several economies worldwide, Tu Nguyen, an economist with RSM Canada, tells Forbes. The impact of a recession varies significantly from country to country, with the severity of the contraction and speed of recovery based on many factors, including a nation’s trading relationships and sophistication of its financial markets.
The last global recession lasted from 2008 to 2009 and was sparked by the financial crisis that followed the collapse of Lehman Brothers. The reverberations of that global downturn are still being felt today, with many developing nations and emerging markets struggling to regain their footing.
The risk of a global recession is intensified by rising interest rates in advanced economies, which could trigger a vicious cycle of deflation, low investment, higher unemployment and stagnant GDP growth. The global economy would likely suffer the dreaded combination of slowing growth, falling prices and rising inflation that is often referred to as “stagflation,” according to McKinsey research.