The long boom that characterized the world economy from the late 1990s to the end of the 2008 global financial crisis (GFC) brought complacency, and with it a sense that things could continue as before. Those who pointed out that all previous economic booms had ultimately ended in painful busts were dismissed with the mantra “it’s different this time”.
But a global recession is not just about slowing growth in aggregate GDP, a measure which has little meaning for those living day to day and whose lives are much more directly influenced by disposable income and job security. Recessions can also lead to political unrest. This was seen in riots that flared across the globe last year, with protests against everything from minor bus-fare increases in Brazil to sky-high rents in Tel Aviv.
Recessions are usually triggered by problems in the financial markets, often coinciding with rapid accumulation of debt in private and public sectors, as households and businesses become overextended. As the credit bubble bursts, investment falls and borrowers struggle to meet repayments, which reduces consumption and activity in general. As the slowdown in investment and consumption spreads, it can affect companies’ ability to sell goods and services, leading to a rise in unemployment. The impact on unemployment and the slowdown in consumer spending can be amplified by the fact that many economies have strong trading relationships with each other, allowing for a slowdown in one economy to be felt globally.
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