Despite the recent drop in US and global stock markets, there’s still little consensus on when or whether the world is entering a recession. A downturn is usually defined as multiple countries’ economies contracting at the same time, and can be spotted in production, employment, or real income. The National Bureau of Economic Research defines a recession as “a sustained period of slowing economic activity spread across the economy and lasting more than a few months.”

The Great Financial Crisis that followed the COVID-19 pandemic triggered one of the largest, longest, and deepest recessions since the 1930s. It caused steep declines in housing investment and construction, with ripple effects on the financial sector. The contraction in output was accompanied by record high levels of unemployment and wealth losses for millions. Many of those losses were recovered, but the recovery took far longer than in previous recessions not associated with financial crises.

Although we’re unlikely to see a repeat of the GFC, we are experiencing an unprecedentedly long, severe, and synchronized global slowdown. This is partly because the COVID-19 pandemic delayed business investment and consumption, but it also reflects policy tightening in major economies. The synchronized withdrawal of policies supporting growth is expected to trigger re-pricing of risk in financial markets, which will have negative spillovers for global activity and per capita GDP. The authors conclude that policies must be adapted to address these risks. They must employ monetary policies to restore, in a timely manner, price stability and reduce output costs. They must also adopt fiscal policies that prioritize medium-term debt sustainability, and provide support to vulnerable groups. Finally, they must improve the resilience of labor markets, energy infrastructures, and trade networks.