Recessions are periods when economic activity slows down and the gross domestic product (GDP), or the total value of goods produced by a region, falls for several months or even years. They are marked by drops in consumption, investments and production, and usually by a rise in unemployment. They may be accompanied by dramatic changes in the price of commodities like oil and gas, making some previously profitable industries less attractive.
The occurrence, size and effect of global recessions vary widely based on a number of factors, including each country’s degree of interconnection with and dependence on the rest of the world economy. The GFC, for example, was triggered by a series of events including a drop in US house prices and an increase in the number of borrowers who failed to repay their loans. Combined with a slowdown in manufacturing and government spending, this led to contractions in the economy as a whole.
While it would be ideal to have a clear definition of what constitutes a global recession, this is not yet possible. A recession is difficult to measure across a vast array of different economies using their own currency systems, and the fact that GDP figures are based on market exchange rates makes them hard to compare. Nevertheless, it is possible to track the evolution of global GDP and related indicators by combining data from a number of sources.
The current detente in trade tensions and a reduction in expected Fed rate increases suggest that the U.S. and world economy should avoid a recession in 2025. However, the global economy faces a high risk of downturn if a decline in inflation expectations leads to additional synchronized monetary policy tightening.