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What is a Global Recession?

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  • Written By: James Doehring
  • Edited By: Lauren Fritsky
  • Last Modified Date: 18 November 2016
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A global recession is an economic recession experienced on a global scale. These can occur more easily in modern times because the economies of most countries are interdependent. According to the International Monetary Fund (IMF), total worldwide economic growth of less than 3% constitutes a global recession. Due to globalization, domestic economic recessions can spread to other countries. For example, the recession of the late-2000s began in the United States and spread to many other industrial nations.

The International Monetary fund was established after the Second World War to oversee global economic cooperation and provide loans to countries experiencing financial difficulties. It still plays a leading a role in global economic affairs. It is difficult to define an economic recession, but the IMF has used a particular definition for years: a global recession means global growth of less than 3%. Global economic growth can be measured simply by totaling the gross domestic products of all countries.

The reason that a positive rate of growth would be troubling is twofold. First of all, positive absolute growth may mean negative per capita growth if the population is increasing enough. Secondly, it is rare that emerging market economies—such as those of many poor countries—display low growth statistics. Therefore, the positive growth of these developing economies can overshadow the negative growth of more industrialized economies.

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A global recession is more likely to occur in the modern world than in the past. There is now a “global” economy in which national borders often do not significantly affect trade. American economist Thomas Friedman defined globalization as the integration of finance, markets, nation states and technologies within a free market system. It is this globalization that can bring local recessions to a global scale.

For this reason, a global recession will typically not emerge from many independent causes. Rather, its origins can often be traced to a particular time and place in the world. This is the case of the recession of the late-2000s.

In 2007, a crisis in the United States banking system occurred that threatened to cause the collapse of many large financial institutions. The U.S. government reacted by bailing out banks with low-interest loans and taking other measures. This was quickly followed by similar crises and responses around the world. Another result was a drop in global stock prices and a general economic slowdown. Due to its global scale, the recession of the late-2000s is often considered the worst economic crisis since the Great Depression.

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