FOR more than a year, barely a day has passed that we have not heard dire economic news about the United States, Europe, or Japan. Unemployment has been rising, company profits have been falling, financial markets have been tumbling, and the housing sector has been collapsing. Is there a single word to describe these developments? Yes: “recession.”
The ongoing global financial crisis has been accompanied by recessions in many countries. This pattern is consistent with the historical record. Synchronized recessions have occurred in advanced economies several times in the past four decades—the mid-70s, early 80s, early 90s, and early 2000s. Because the United States is the world’s largest economy and has strong trade and financial linkages with many other economies, most of these globally synchronized recession episodes also coincide with U.S. recessions.
Although U.S. recessions have become milder over time, the current recession is likely to change this trend. Already 16 months old—with sharp declines in consumption and investment—it could become one of the longest and deepest recessions since the Great Depression of the 1930s.
Suggestions for further reading:
Claessens, Stijn, M. Ayhan Kose, and Marco Terrones, 2008, “What Happens During Recessions, Crunches, and Busts?” IMF Working Paper 08/274 (Washington: International Monetary Fund).
Claessens, Stijn, M. Ayhan Kose, and Marco Terrones, forthcoming, “American Recessions: Domestic and Global Implications” IMF Working Paper (Washington: International Monetary Fund).