In the past, global recessions have been triggered by a variety of factors. The economic slowdown that followed the Arab Oil Embargo in the fall of 1973, for example, accelerated inflation and precipitated what was known as “stagflation,” a dreaded combination of stagnating or falling growth, rising unemployment and high inflation. The next global recession a decade later, which was a symptom of a financial crisis in the US and other advanced economies, had similar causes.
This time around, the signs of a global economic downturn are more serious than in previous episodes. The world’s largest economies are already slowing, and consumer confidence has taken a much sharper hit than in the lead-up to previous global recessions. And unlike in previous slowdowns, when global GDP (measured as gross domestic product) declines, so does global real GDP (measured as gross domestic income, or GDI).
As the global economy continues to slow down, countries around the world will need to work together to avoid a global downturn and the devastating social and economic disruption that would ensue. They must cooperate to boost investment and trade, address climate change and rising inequality, and strengthen global institutions to deal with crisis situations like the pandemic.
But the prevailing focus on fighting inflation risks distracting policymakers from more urgent challenges. In fact, the Forum’s survey of chief economists indicates that global growth will remain below pre-pandemic levels for at least the third year running, with the most pronounced slowdowns in emerging market and developing economies, where demand has been squeezed by currency pressures, unprecedented capital flows reversals and declining risk appetite, and weaker health systems and limited fiscal space to provide support.