A global recession is a contraction of economic activity that synchronizes across countries. It is a more severe economic downturn than a country-specific one, and the contraction typically lasts longer than a normal business cycle, causing greater hardship for people in those countries. It is triggered by economic shutdowns such as those caused by quarantines and social distancing in response to the COVID-19 pandemic, as well as other factors such as a decline in stock market prices, a spike in oil prices, and falling demand for goods and services due to fear of infection or higher cost-of-living (as evidenced by a slowdown in consumer confidence).
When is a global recession?
A recession is generally defined as a period of negative real GDP growth. However, a global recession is different, because it extends beyond the idiosyncratic factors that affect a single country, and encompasses all economies that are interconnected. For this reason, the IMF is considered to be the global authority in defining and dating recessions. Unlike the National Bureau of Economic Research, which only defines a recession based on a drop in GDP, the IMF requires a deterioration in a number of other indicators, including trade flows, capital investment, industrial production, employment, energy consumption, and per-capita investment.
In addition to a deterioration in economic indicators, it is important to note that a global recession will usually cause a rise in unemployment rates, which is an indication of decreased spending. This in turn can lead to lower tax revenue and a reduced ability for governments to provide public goods.