Recession is an economic downturn that reduces overall economic activity and causes unemployment, falling consumer spending and other negative effects. Recessions are often the result of financial crises, like the one that began in 2007 with a sharp increase in house prices that led to many homeowners becoming overextended on their mortgages. When household debts become too high, banks stop lending, and businesses cut back on investments and payrolls.
The Global Financial Crisis (GFC) was the worst recession since the 1930s, causing millions of people to lose their jobs and homes. It took years for the world’s economies to recover, and those that did recovered slower than in past downturns not associated with a financial crisis.
During the GFC, employment in social industries and teleworkable jobs fell more than in management, business and financial occupations. In addition, employment in industries with lower income earnings suffered more than in those with higher incomes. This suggests that the COVID-19 recession has a wider distributional impact than the GFC did.
While there have been some signs that the world may be in a global recession, it’s too early to tell for sure. For a country to officially be in a recession, its gross domestic product (or GDP) must drop for several months or even a year. In the United States, the National Bureau of Economic Research defines recessions based on criteria that include GDP, employment and investment data.
However, in a global recession, the declines in growth are synchronized across many interconnected economies. The impact on individual countries varies according to their level of dependence and connection to the global economy, as well as the length and severity of the downturn.