Global Recessions

The four global recessions identified above were all characterized by severe economic and financial disruptions in many countries around the world. But each recession had its own unique features.  In particular, the shocks that contributed to the global recessions were different. The 1975 global recession was driven mainly by a global supply shock – the oil price shock of 1973-74. The 1982 episode followed a series of shocks, including the oil price shock of 1979; the subsequent rise in global inflation; monetary policy responses to that increase in inflation, especially the marked monetary tightening by the U.S. Federal Reserve; and the Latin American debt crisis. 

However, there are also similarities across the global recessions, including in their origins. A number of countries experienced financial crises during the four global recessions.  In the 1991 global recession, a wide range of national shocks were transmitted across borders, including financial disruptions and exchange rate crises in some advanced economies, especially in Europe, and a major shift in political and economic systems in many Eastern European countries. The 2009 episode originated mainly from problems in the U.S. financial sector that started to become evident in 2007. These problems rapidly propagated to other advanced economies and some EMDEs through trade and financial linkages.  

The global recession of 1975 followed the shock to world oil prices from the Arab oil embargo initiated in October 1973. Although the embargo ended in March 1974, the supply shock and associated sharp rise in oil prices triggered a substantial increase in inflation and a significant weakening of growth in a number of countries. Monetary and fiscal policy easing, especially by some major advanced economies, helped spur a rebound of growth in 1976. However, the Group of Seven countries except for Germany and Japan – Canada, France, Italy, the United Kingdom, and the United States – experienced persistent and high inflation, and the 1975 global recession was the beginning of a halfdecade of stagflation, with low output growth and high inflation.  

The global recession of 1982 was triggered by several developments, including the second oil shock of 1979; a tightening of monetary policies in the United States and other advanced economies; and the Latin American debt crisis. Oil prices rose sharply in 1979, partly owing to disruptions caused by the Iranian revolution, and this helped push inflation to new highs in several advanced economies. Partly in response, monetary policies were tightened significantly in several major advanced economies, including Germany, Italy, Japan, the United Kingdom, and the United States, causing sharp declines in activity and significant increases in unemployment rates in many cases in 1982-83. The increase in global interest rates and a collapse in commodity prices that stemmed from the weakening of global growth made it difficult for many Latin American countries to service their debts, resulting in debt crises in the region. The advanced economies were generally able to begin their recoveries relatively quickly, although unemployment in some cases remained relatively high. But the debt crisis contributed to long-lasting growth slowdowns in many EMDEs, especially in Latin America and the Caribbean (LAC) and Sub-Saharan Africa (SSA). 

The 1991 global recession also resulted from the confluence of a wide range of factors. The 1990-91 Gulf War was associated with heightened geopolitical uncertainty and another sharp increase in oil prices. In the United States, widespread weakness of lending institutions, evident since the mid-1980s, weighed on the housing market, especially during the credit crunch of 1990-91. Scandinavian countries had severe banking crises in the early 1990s, following the liberalization of financial sectors and rapid expansion in credit markets in the 1980s. In Europe, problems with the European Monetary System's exchange rate mechanism (ERM) in 1992 were accompanied by sharp declines in activity in many member countries. In Japan, the bursting of an asset price bubble resulted in a recession and a prolonged period of low growth and near-zero inflation. In Central and Eastern Europe and the former USSR, the transition to market economies was accompanied by high inflation and output contractions. 

The 2009 global recession followed the worst financial crisis since the Great Depression. The crisis started in mid-2007 in major advanced economies and followed a period of loosening regulation and supervision of financial markets and institutions, asset price and credit booms in a number of countries, and the rapid expansion of high-risk lending, particularly in U.S. mortgage markets. The collapse of Lehman Brothers, in September 2008, triggered a full-blown financial and macroeconomic crisis. Although the initial trigger for the crisis was the U.S. mortgage markets, the high degree of interconnectedness between the U.S. and other financial markets caused the crisis to spread to other advanced economies and some EMDEs. Banking crises erupted in many European countries in 2008, causing financial crises in the euro area in 2011-13. These events caused sharp asset price declines and severe credit crunches, a collapse in global trade, and highly synchronized recessions in a record number of countries around the world. However, as discussed below, with the exception of some of those in the Europe and Central Asia (ECA) region, EMDEs weathered the 2009 global recession relatively well.