Global Recession: What, why, how of it;

What will be its Impact on India?

Global financial markets are in turmoil. Silicon Valley Bank and Signature Bank, two
regional US banks have already gone bankrupt in March 2023. Credit Suisse is being taken
over by UBS, both giant Swiss Banks. Will these developments trigger a global recession?
But what is global recession? A global recession is an extended period of economic decline
around the world. Most experts use the practical definition of recession as two consecutive
quarters of decline in a country’s real (inflation-adjusted) gross domestic product (GDP).
On January 10, 2023, World Bank released its Global Economic Prospects report. In the
report World Bank said: Global growth is slowing sharply in the face of elevated inflation,
higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of
Ukraine. Amidst the ongoing geopolitical developments happening around the globe, it is
widely expected that India may experience an economic downfall in the medium term due
to the Global Recession.
Table of contents
1. What Is a Global Recession?
2. Five Global Recessions since World War II: Global Recession History Chart
3. Why do recessions happen?
4. Is Global Recession coming in 2023?
5. Impact of Global Economic Slowdown on India
Let’s learn about each of these aspects in some detail.
 
What is a Global Recession?
A global recession is an extended period of economic decline around the world. According
to Investopedia, “A global recession involves synchronized recessions across many national
economies, as trade relations and international financial systems transmit economic shocks
and the impact of recession from one country to another.”
 
International Monetary Fund (IMF), that works to achieve sustainable growth and
prosperity for all of its 190-member countries, uses a broad set of criteria to identify global
recessions, including a decrease in per capita Gross Domestic Product (GDP) worldwide.
The Global Recession Example as per the IMF’s definition, this drop in global output must
coincide with a weakening of other macroeconomic indicators, such as trade, capital flows,
and employment.
 
In the United States, the private National Bureau of Economic Research (NBER), which
maintains a chronology of the beginning and ending dates of U.S. recessions, uses a Global
Recession Example with broader definition and considers a number of measures of activity
to determine the dates of recessions. The NBER’s Business Cycle Dating Committee defines
a recession as “a significant decline in economic activity spread across the economy, lasting
more than a few months, normally visible in production, employment, real income, and
other indicators. A recession begins when the economy reaches a peak of activity and ends
when the economy reaches its trough.” 
 
However, most experts practically define the recession as two consecutive quarters of
decline in a country’s real (inflation-adjusted) gross domestic product (GDP).

Global Recession Timeline: Five Global Recessions since World War II

Global Recession History Chart, according to the IMF, is that there have been four global
recessions since World War II, beginning in 1975, 1982, 1991, and 2009. So, if we ask,
when was the Last Global Recession happened, it was 2009 as per IMF. The Global
Recession Timeline for each of these recessions have been long enough to create
unemployment leading to curtailment in purchasing power. However, in 2020, the IMF
declared a new global recession, due to lockdown caused by the widespread
implementation of quarantines and social distancing measures during the COVID-19
outbreak. This is the worst global recession on record since the Great Depression.
 
Why do recessions happen? The Global Recession Cause
The next question is – why do global recessions happen? There are a variety of reasons due
to which recessions take place. Some Global recession causes are associated with sharp
changes in the prices of the inputs used in producing goods and services. For example, a
steep increase in oil prices can be a harbinger of a recession. As energy becomes expensive,
it pushes up the overall price level, leading to a decline in aggregate demand. A recession
can also be triggered by a country’s decision to reduce inflation by employing
contractionary monetary or fiscal policies.
 
Global Recession 2023
According to World Economic Forum’s Chief Economists Outlook, Global Recession 2023
and Economic Slowdown will be different in different countries, and economic outlook will
feel different depending on where you are in the world. According to WEF Survey, while the
overall global picture is gloomy and almost 20% of the respondents now see an extremely
likely chance of a global recession 2023 - double the number as in the previous survey in
September - there are significant variations between geographies. The majority of chief
economists expect moderate or strong growth in the Middle East and North Africa and in
South Asia, while more than nine out of 10 think growth will be weak in the US and Europe.
 
Sharp, Long-lasting Slowdown to Hit Developing Countries Hard: World Bank
(January, 2023)
On January 10, 2023, World Bank released its Global Economic Prospects report. In the
report World Bank said: Global growth is slowing sharply in the face of elevated inflation,
higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of
Ukraine. “Given fragile economic conditions, any new adverse development—such as
higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of
the COVID-19 pandemic, or escalating geopolitical tensions—could push the global
economy into recession,” warned World Bank.
Clarifying the Global Recession Timeline, World Bank shares that the global economy is
projected to grow by 1.7% in 2023 and 2.7% in 2024. This sharp downturn in growth is
expected to be widespread, with forecasts in 2023 revised down for 95% of advanced
economies and nearly 70% of emerging market and developing economies. Growth in
advanced economies is projected to slow from 2.5% in 2022 to 0.5% in 2023. Over the past
two decades, Global Recession Timeline and slowdowns of this scale have foreshadowed a
global recession. In the United States, growth is forecast to fall to 0.5% in 2023—1.9
percentage points below previous forecasts and the weakest performance outside of
official recessions since 1970. In 2023, euro-area growth is expected at zero percent—a
downward revision of 1.9 percentage points. In China, growth is projected at 4.3% in 2023
—0.9 percentage point below previous forecasts.
 
Impact of Global Economic Slowdown on India
Amidst the ongoing geopolitical developments happening around the globe, it is widely
expected that India may experience an economic downfall in the medium term. Moody's
Investors Service recently shared a report, where it lowered India's economic growth
projection to 8.8% for 2022 from 9.1%, which was projected earlier by citing high inflation.
Since India’s economic fundamentals are much sturdier as compared to other countries,
therefore, despite some short-term turbulence, the impact on the long-term outlook will be
minimal.
 
In terms of good news, the fear of an upcoming recession is bringing commodity prices
down. The crude oil prices have come down significantly. Though this might affect the
advanced economies adversely, it will be a relief for India, which is regarded as the world's
third largest oil-consuming and importing nation.
 
So, most economic experts believe that the global recession won’t affect the Indian
economy severely, as our economy is strong enough to maintain solid growth momentum.
But India must be watchful of the global economic recession as all major economies are
now interlinked.