A global recession is an extended period of slowdown or decline in economic output that affects economies worldwide. It typically coincides with falling consumer and business confidence, lower investment spending, and rising financial stress. The impact and severity of a global recession vary by country, depending on factors like a country’s trading relationships with other countries, its manufacturing capacity, its financial markets, and the sophistication of its investments.
The current global economic situation is shaky but not yet in crisis mode, according to the World Bank’s latest 2024 Global Economic Prospects report. The US dollar’s outsized role in international finance and trade has helped to keep the global economy afloat, but it is now stronger than it was at the start of the COVID-19 pandemic in 2020, when the last global recession began.
Indicators of an approaching global recession include a flattening of global industrial production and a deterioration in the growth of world trade. In addition, the US 10-year minus 2-year Treasury yield spread is inverted and has been for more than two months, a classic indicator of a recession within 12 months.
The risk of a global recession is magnified by dense and complex global supply chains, where most traded goods are intermediate inputs that cross borders multiple times before being turned into final products. This makes it difficult for businesses to adjust rapidly to shifts in demand and can lead to a self-reinforcing cycle of higher risks, slower growth, and eventually recession.