Global Recession

Written By
Paul Tracy
Updated August 5, 2020

What is a Global Recession?

A global recession occurs when global gross domestic product growth is 3% or less.

How Does a Global Recession Work?

The International Monetary Fund (IMF) identifies global recessions, which have some things in common with national recessions. For example, recessions associated with financial crises tend to last longer, and global recessions that are synchronized (that is, at least 10 countries are in recession at the same time rather than in a domino-effect manner) also tend to last longer.

Some research finds that fiscal policy is especially helpful in ending global recessions caused by financial crises, but economies that have a lot of government debt may not feel as much improvement.

Why Does a Global Recession Matter?

Recessions are a normal part of the business cycle, but government fiscal and monetary policies often play key roles in making sure recessions do not go on for long. These policies involve increasing or decreasing government spending on entitlement programs and public works projects that create jobs, and they may involve changing bank reserve requirements, the interest rate at which central banks lend money to banks, or the purchase or sale of Treasury securities.