As the global economy grapples with trade tensions, rising inflation, and tightening credit conditions, it’s no wonder that fears of a global recession are on the rise. Indeed, the possibility of a global contraction in GDP has been discussed by several commentators, including rating agency Fitch and World Bank economists.
A global recession is defined as a period of economic slowdown that affects multiple major economies simultaneously, with evidence of decline in real gross domestic product (GDP), employment, and trade over a sustained period. In contrast to national recessions, which are often measured by how long a country’s GDP is contracting, the definition of a global downturn is much more broad-based and focuses on the overall performance of the world economy.
The onset of a global recession is usually triggered by a variety of factors, most prominently by an oversupply of goods or services that exceeds demand. This can occur when consumer trends peak and start to wane, causing businesses to stop investing and producing goods. If this overproduction continues, demand will continue to fall until companies are compelled to reduce output and lay off workers.
Another important factor that contributes to global recessions is increased uncertainty about the future. When consumers and businesses don’t know how their purchasing or investment decisions will impact the economy, they’re less likely to spend or invest money. This type of uncertainty can be caused by wars, pandemics, and other events that make it hard to predict the short and long-term trends of an economy.
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