A global recession occurs when a number of countries experience synchronized declines in economic activity. The severity of a global recession depends on a country’s trading relationships with the rest of the world, the sophistication of its markets, and the strength of its financial systems. The interconnectedness of trade and investment systems among countries also makes it easier for a shock to spread from one region to another, a process known as contagion.
A slowdown in global growth is not necessarily a precursor to a global recession, although the risks are rising. Heightened trade tensions and policy uncertainty have already weighed on investor confidence and contributed to slowing growth in many economies.
The risk of a global recession is higher than usual because most of the world’s major economies are experiencing slowing growth. Two G7 economies – Japan and the UK – have slipped into a technical recession, and there are growing concerns about China’s slowing economy.
However, it is unlikely that the global economy will enter a formal recession in 2023. This is largely because investors are still anticipating that governments will continue to pump trillions of dollars into the economy through quantitative easing policies in order to prevent a deeper contraction. Nonetheless, the World Economic Forum’s latest Chief Economists Outlook reports that nearly half of those surveyed expect a worsening in global economic conditions. If that occurs, the global growth trajectory could slide further below its pre-pandemic trend.
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