February , 2023
Is the Global Economy heading for Recession?
13:43 pm

Madhusudhanan S

Few asked this question. Is it true? Hopefully, by the end of this article and analysis, we may find an answer. Before going into whether we are heading to the global recession, it is important to understand what are the characteristics of global recession.

Characteristics of Global Recession:

There is no consensus on or any specific definition of global recession. According to Kose and Terrones (2015), the contraction of annual global per capita GDP is known as a global recession.

According to the World Bank, since 1970 the world economy has experienced recession five times. The five periods of the global recession are 1975, 1982, 1991, 2009, and 2020. The following table shows GDP growth during global recessions.

Table 1. GDP growth during Global Recessions




Global recessions











All years





















Per capita GDP









Advanced economies




















Per capita GDP





























Per capita GDP









Sources: Kose, Sugawara, and Terrones (2020); World Bank.    


Note: Percent changes in GDP and per capita GDP in respective groups are presented. The sample period is 1970-2021. “Non-recessions” refers to all years excluding the five global recession years.             


From the above table, one can see that there was positive growth in GDP during the first three recession years but the per capita GDP (World) has declined. It is also visible that for the past two global recession periods, both GDP, as well as per capita GDP, has declined. 

According to the World Bank, the decline in per capita GDP is also accompanied by slowdowns in global trade, industrial production, employment, oil consumption and capital flows. These are highly harmonised across the globe during the recession. 

Post-Pandemic Developments and Present Context

The global GDP collapsed during 2020, mainly due to the pandemic and lockdowns across the world. In 2021, the global GDP had a growth rate of 5.7%. This is the strongest growth rate after the recession pace in the past 50 years. However, the projected global growth path for 2021-23 constitutes the sharpest decline since 1970 after an initial rebound from the global recession. The overall global growth is projected to slow by 3 to 4%. This is one of the earliest slowdowns where economic activity stalled, after the recession, even before the economic activity reached its pre-pandemic level.

The International Monetary Fund (IMF) in its World Economic Outlook (October 2022), has projected that the global growth rate remains unchanged in 2022 at 3.2%, and to further slow down to 2.7% in 2023 (See the graph below). This is 0.2 percentage points lower than its July forecast.

This means it is true that the global economy may be heading towards a recession. But what is the main cause or reason for this slowdown in global growth?



The worrisome factor that slows Global Growth


According to the World Economic Forum’s (WEF) Chief Economist Outlook, (September 2022,) – a Survey conducted by WEF, the outlook for global growth is weak due to high rates of inflation. It is not only the WEO survey but also IMF and World Bank stating the global growth rate may get affected mainly due to high rates of inflation.

It is to be remembered and understood that whenever there are high rates of inflation, then monetary tightening takes place to reduce inflation. By doing so, the central banks not only restore inflation to a tolerance level but also restore their credibility on targeting inflation or inflation targeting framework. This will eventually reduce inflation expectations and prevent higher inflation.

The major reasons attributed to high inflation rates are the Ukraine war, energy and food prices post-pandemic.

According to the UN’s Food and Agriculture Organization (FAO)’s Food Price Index, there was an increase of 12.6% in February and March-the highest level since its inception in 1990. However, for November there is no change in the price index (compared to October 2022) and marginally increased (0.3%) compared to November 2022.

The oil prices are also rising as there is a concern over the supply in future as Russia's war with Ukraine is still going on. Therefore, there is not only a supply constraint which increases the price but also future expectations or apprehension about the supply of oils.

Can Recession be Avoided?

Even the World Bank’s analysis agrees that yes it can be avoided and the world can escape recession. According to the World Bank, “Our analysis indicates that the global economy could escape a recession even if additional monetary policy tightening beyond current market expectations is needed to reduce inflation. However, this would require the additional tightening to be implemented in such a way as to generate an orderly adjustment in financial markets. More importantly, policymakers need to utilize the full menu of options available to get ahead of inflation and reduce the likelihood of a sharper decline in growth.”

IMF also states that “Monetary policy should stay the course to restore price stability, and fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy.”

Therefore, it is evident from both the above statements of the World Bank and the IMF that coordinated efforts of economic policies are required to tackle not only inflation problems but also to avoid recession.

Fiscal and monetary policies play a vital role in not only anchoring inflation but also anchoring inflation expectations. The supply constraint (including supply chain problems) needs to be addressed as early as possible especially to tackle inflation expectations. 

What the global economy needs to do (Conclusion):

Both fiscal and monetary policies should aim at reducing inflation. Along with that there is a requirement for structural reforms, which will not only improve productivity but also remove the supply constraint problem. The coordinated efforts to tackle the supply constraint problem is very essential as they can avoid not only inflation expectations but also recession itself.

In today’s globalised world, one cannot ignore the spill-over effect. The spill-over effect is an economic phenomenon in which an economic event occurs in one context (at a time and place when it comes to global effect especially), because of something else which is completely unrelated to the context.

This spill-over effects not only applies to the economic problems which occur only within the economy but also the policy spill-over across the world. Therefore, the major players in the global economy have to consider the spill-over effects (of policies) before making decisions on their economic policies (both monetary and fiscal policy) for their economy. Only synchronised economic efforts can make the world avoid a global recession.


Add new comment

Filtered HTML

  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <blockquote> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Lines and paragraphs break automatically.

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.