As the global economy grapples with rising trade tensions and sluggish growth, analysts are wondering whether a recession is in the cards. A downturn would be bad for all economies, but it is especially challenging for low-income countries that depend on their exports and have little room to expand domestically. They could see their citizens suffer unemployment and face increasing prices and declining incomes, and financial markets might become more reluctant to lend to them.
The last global recession was triggered by the collapse of the housing market, which brought down other sectors as well. US house prices peaked in 2006, and when they started to fall, borrowers struggled to keep up with their loan repayments, prompting many of them to default on their mortgages. This led to a drop in investment and consumption, which caused the rest of the economy to slow down.
Some economists define a recession as two consecutive quarters of negative economic growth. Others, such as the International Monetary Fund, look for a more comprehensive set of indicators, including deteriorating trade, capital flows and industrial production, sluggish per-capita investment and consumption, and rising unemployment.
A global recession is often synchronized, with most of the world’s major economies experiencing falling growth at the same time. This is because most of them are linked by strong trade and financial linkages with the United States, which is the largest economy in the world. These synchronized recessions also tend to be shorter and less severe than isolated regional downturns.
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