What Does Global Recession Mean, Causes and How to Survive

Key takeaways:

• During a global recession, the global gross domestic product contracts, and simultaneously, several global economic activities grow weak.

• Over the past seven decades, the whole world has observed not just one but five global recessions.

• The first global recession occurred in 1975, then in 1982, 1991, 2009, and most recently in 2020.

Introduction

Since the beginning of the great economies that exist even to this day, we have witnessed a sort of deterioration. Though it usually goes unnoticed at first, the tightening of financial conditions could give rise to an event on a global scale very quickly. That global-scale event is what we call a global recession.

It is one of those burning topics that needs your attention. The goal behind understanding what a global recession is is to know how to avert it or, if anything, survive it. A global recession is a severe financial crisis experienced all over the globe that comes with devastating consequences.

The true meaning of global recession

There is no fixed definition of “global recession” that one can refer to in times of need. But despite the absence of a practical definition, the true meaning of “global recession” can be derived from its effects.

But most prominently, the synchronized financial disruption all around the globe indicates what a global recession’s true meaning is. The effects of the global recession are not only limited to the financial sector; they also damage the economic conditions in many countries at once. It is said that the global recession of 2009 was the deepest and most synchronized of all its predecessors.

Basically, we can say that the global recession is the harbinger of a period of extreme stress in terms of global financial markets. It affects not only the banking system but also leaves the housing system in a dilapidated state. The aftermath of a global recession includes banks incurring great losses, millions of people losing their jobs, and numerous companies declaring bankruptcy.

The Causes

So far, we have understood that there is a pattern to global recessions. After experiencing a total of 5 of the worst global recessions, economists have concluded that this is a sign of the next global recession’s arrival. This arrival happens after two successive quarters of negative economic growth.

But how do we avert it? If only we knew the main causes behind global recession, there’s a chance that we could avoid it. Here are a few well-known and well-researched causes of the global recession.

• Any significant disasters like war

Wars and other disasters put immense pressure on the global economy. Fuel and food shortages are common occurrences in war-torn countries. But wars damage the economy and cause permanent fragmentation of finances that ultimately affect the world’s economy. This is why economists and financial experts hold war-like disasters responsible for it.

• Decline in per capita GDP

The decline of per capita GDP is a serious concern that might be a foreboding of a global recession, as per the International Monetary Fund (IMF). The IMF has stated that the condition could get worse if there is extreme risk aversion. This is why the decline in annual per capita GDP serves as a warning sign.

• Rising unemployment rate and layoffs

If there’s a nation slipping into recession, that could turn into a global problem quickly, and their unemployment rate would spike. A rise in unemployment could eventually have a negative implication and turn out to be reduced productivity. In this situation, progress slows down and a global-scale recession seems probable.

• Retardation of purchasing power

Great economies around the world exist because of the purchasing power possessed by their currencies. However, if this purchasing power dwindles as a result of unchecked inflation, this can frequently lead to a recession. A global recession is a severe economic downturn in which high living costs, high interest rates, and dwindling credit ratings all work together to reduce a currency’s purchasing power.

• Decreasing confidence in investments

Global consumer confidence being at its lowest levels could result in a general decrease in confidence in investments. As a result, market analysts are detecting signs of a sharp decline in global financial markets that are devoid of investors. All of this could contribute to hastening a recession because the lack of investor confidence breaks the economy and causes consumers to delay their spending.

How to survive a it

After discussing the true nature of it and understanding some well-known factors, a situation like that appears to be nothing short of a nightmare. Let’s take a look at the following tips to survive this situation:

• Tech investments: We talked about how investing confidence slows down the economy. But during a recession, if you could play it safe then the situation can be handled. Experts advise investing in technology because demand for tech skills returns once the market situation improves.
• Avoiding layoffs: While layoffs become necessary during trying times, it is certainly not the only solution. There are other operational improvements that could cut costs much more than laying off a number of employees that results in hurting morale and slowing down productivity.
• Track the downturn: Before the situation turns chaotic, businesses and government need to deleverage at the earliest signs of a downturn. To do that, one needs debt financial management because companies with high debts are highly vulnerable during a recession.

Conclusion

The preceding information provides an overview of how severe these recessions can be while also providing information on how to survive them. As things stand, the world has already experienced five global recessions, and the global economy is still thriving.

FAQs

Will 2023 be a recession?

According to various experts, in 2023, the world will barely avoid a global recession.

How long will a recession last?

The duration of a recession varies from time to time. It could last anywhere between 2 and 10 months.

What’s the best thing to do in a recession?

You should keep your emergency funds protected, look for growing career opportunities, focus on debt repayment etc.

Should I keep cash during a recession?

For the short term, cash could prove to be a good investment.