A global recession is a contraction in economic activity that lasts for more than a few months. It can lead to falling stock prices, lower consumer spending and increased inflation as businesses pass along higher input costs. It’s one of the biggest reasons that many investors watch consumer debt, unemployment and GDP as bellwethers for a recession.

A number of factors can cause a global recession, including rising interest rates. As central banks raise rates to combat inflation, it increases the cost of borrowing for consumers and businesses, reducing their disposable incomes and purchasing power. This can lead to a slowdown in consumer spending, which is usually the largest driver of global economic growth.

Other causes of a global recession include economic bubbles and wars. Economic bubbles occur when the price of something — like tulips or housing in 2008 — rises due to speculation, market trends or consumer confidence, until supply exceeds demand and the bubble bursts. This leads to low consumption, investment and jobs, which can be hard to reverse.

Wars can also lead to a global recession, especially when they disrupt the flow of goods and services needed for everyday life. For example, the Ukraine-Russia war has forced European nations to stop buying Russian gas for home heating and heavy industry, leading to rising energy costs that reduce disposable incomes and household spending. Rising geopolitical tensions can also drive up the prices of key commodities like oil and natural gas, which could have a ripple effect on other industries.