IMF Survey : When National Cycles Coincide: Tracking Global Recessions and Recoveries

IMF News, February 9, 2016

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Canonical URL: IMF Survey : When National Cycles Coincide: Tracking Global Recessions and Recoveries

The world has experienced four global recessions since 1960: in 1975, 1982, 1991, and 2009.
The 2009 recession was "the most devastating" since 1960 and marked by unprecedented synchronization across advanced, emerging, and developing economies.
The multimedia book "Collapse and Revival: Understanding Global Recessions and Recoveries" (authors Ayhan Kose and Marco Terrones) examines these episodes through text, charts, and multimedia interviews.

A global recession is defined as:
- "a contraction in real world output per capita" accompanied by
- "a broad, synchronized decline in various other measures of global economic activity, including global industrial production, trade, capital flows, employment, and energy consumption."
Global recessions are relatively rare: four events since 1960 (1975, 1982, 1991, 2009).

Per capita global output shrunk by 1.8 percent in 2009.
This fall compares to the average of -0.7 percent decline of the four episodes.
Additional 2009 impacts:
- Global trade collapsed.
- Capital flows and industrial production registered significant declines.
- 23 million people lost their jobs.
Key characteristic: unprecedented synchronization—"a global recession hits everybody at the same time."

Policy space: "the larger the better during global recessions." Countries with sufficient fiscal or monetary room can stimulate activity more effectively.
Policies for macro-financial stability: "A close monitoring of cycles in financial markets should be an integral part of macroeconomic surveillance and policy design in a highly integrated global economy."
A balanced growth strategy: support from both domestic and external demand, and a diversified export base, is necessary for the long haul.
Policy coordination: "essential during global recessions." Strong cross-border trade and financial linkages mean coordinated responses are needed.

Forecasting global recessions: "Are we good at forecasting global recessions? The answer is no."
Latest forecasts (as of the interview) indicate the global recovery will continue in 2016; "a global recession is not in the cards for this year," but "there are significant downside risks."
Noted risks:
- Slowing in a number of emerging markets, including China, which have been slowing since 2010.
- The collapse in oil prices hitting oil exporters hard.
- Financial risks from divergence of monetary policies in advanced economies.
- Rapid accumulation of corporate debt in some emerging markets.
On secular stagnation:
- Some advanced economies (Japan and some countries in Europe) may be experiencing prolonged weak growth.
- The U.S. is described as not in the same group, with "reasonably healthy" growth and significant job creation.
- Pre-crisis accumulation of private debt led to deleveraging that impeded growth; many advanced economies face structural problems requiring comprehensive reforms.

Historical pattern: "an increase in uncertainty in each episode" of global recessions.
The 2009 recession produced heightened policy uncertainty (fiscal policy, financial sector policies in the United States, and responses to the euro area debt crisis), which adversely affected consumption and investment.
Recommendation: "Governments and central banks need to clearly articulate their policies to overcome the problem of uncertainty."
Communication challenges: unconventional monetary tools were necessary but created new communication challenges for central bankers.
Policy objective: "Policies should ultimately inspire confidence, not be a source of uncertainty themselves."

IMF Survey interview with Ayhan Kose and Marco Terrones, February 9, 2016.