Global Recession 2024: What, Why and How; Impact on Indian Economy?
In February 2024, Japan has unexpectedly slipped into a recession after shrinking for a second quarter due to sluggish domestic demand. This follows soon after the United Kingdom (UK) also dipped into a recession at the end of last year. These developments are being watched across the globe with caution. Indian economy however continues to remain stable. Since global Recession, and its impact on countries like US, Europe, Japan and India is a hot topic, MBAUniverse.com has prepared this article to help MBA aspirants prepare for GD, Extempore and Personal Interview.
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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. Continue reading for more insights on this topic.
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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 2024 – UK Economy Slows Down
Britain's GDP fell 0.3 per cent in the fourth quarter, more than the 0.1 per cent drop economists forecast, according to the Office for National Statistics data. This followed an unrevised 0.1 per cent decline in the previous three months. The output of every main sector in the economy fell in the final quarter of 2023, said Liz McKeown, ONS director of economic statistics, ‘with manufacturing, construction and wholesale being the biggest drags on growth, partially offset by increases in hotels and rentals of vehicles and machinery’.
Global Recession 2024 – Japan's economy contracts
Japan GDP contracted at an annualized pace of 0.4 per cent in the final three months of last year, following a revised 3.3 per cent retreat in the previous quarter, the Cabinet Office reported on Thursday. The report showed both households and businesses cut spending for a third straight quarter as Japan’s economy slipped to fourth-largest in the world in dollar terms last year.
Impact of Global Economic Slowdown on India
Amidst the ongoing geopolitical developments happening around the globe, it is expected that India may also experience an economic slowdown in the medium term. 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.
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