A global recession involves more or less synchronized economic declines in many countries, as trade and financial systems transmit economic shocks and the impact of slowing growth to distant economies. The last global recession, the Great Financial Crisis of 2008-9, began in the United States and spread throughout the world as a result of a combination of factors, including a collapse in financial markets, a sharp slowdown in investment, a loss of confidence in the ability of financial institutions to manage their assets and debts, and rising geopolitical tensions.
Global recessions typically last a year or more, and are characterized by sharp drops in output, industrial production, oil consumption, GDP, the unemployment rate, and per-capita investment and consumer spending. They are usually associated with turmoil in financial markets, as investors rush to sell stocks, bonds, and other financial instruments. Governments often take a range of steps to respond: increasing spending, guaranteeing deposits and bank loans, reducing taxes, purchasing ownership stakes in banks and other financial firms, and even stepping in to prevent bankruptcies.
The risk of a global recession has diminished in recent days as US-China tensions ease and the Federal Reserve begins to roll back its tighter monetary policy. Nonetheless, the outlook is cloudy. Rising uncertainties over the global economy’s prospects — especially a sharp downturn in corporate profits caused by President Trump’s tariff policies — are weighing heavily on investor and business confidence. Moreover, the current policy constellation of globally synchronized monetary tightening may not be sufficient to restore low inflation in the near term.