Global Recessions
The global expansion phase refers to the period between two global recessions. The world economy has experienced four expansions since the 1975 recession: 1976–81, 1983–90, 1992–2008, and the current expansion, which started in 2010.
Different durations. Global expansions since 1975 have varied in duration, between 6 years (following the 1975 recession) and 17 years (following the 1991 recession). The longest global expansion, 1992–2008, coincided with the information technology revolution, the integration of China and many other emerging market economies into the global economy, a sharp increase in commodity prices, and rapid growth in international trade and financial flows. Although this benign period of macroeconomic stability acquired the label of "The Great Moderation", it did witness global downturns in 1998 and 2001, during which the world economy came close to outright recession. The latest global expansion, which turned ten years old in 2019, has seen a global downturn episode in 2012, but also the longest U.S. expansion in history.
Changes in amplitude over time. The world economy on average registered 3.3 percent annual output growth in the four global expansions (Figure 11.A; Table 9). The strongest expansion was the one that followed the 1982 recession. Reflecting the support of accommodative policies, recoveries in confidence, pent up demand, and ample spare capacity, the growth of activity in the first year after each global recession has tended to be faster than average growth over the expansion phase.
Figure 11.A. Global economic activity and financial market developments in global expansions
Table 9. Main features of global expansions
| Global expansions | Global expansions (excluding initial years) | All years | |||||||||
| 1976-81 | 1983-90 | 1992-2008 | 2010-19 | Average | 1977-81 | 1984-90 | 1993-2008 | 2011-19 | Average | ||
| Activity | |||||||||||
| Output | 3.5 | 3.5 | 3.1 | 3.0 | 3.3 | 3.1 | 3.6 | 3.2 | 28.0 | 3.2 | 3.7 |
| Output per capita | 1.7 | 1.7 | 1.7 | 1.8 | 1.7 | 1.4 | 1.8 | 1.8 | 1.6 | 1.7 | 2.0 |
| Industrial production | 3.7 | 3.5 | 2.8 | 2.9 | 3.2 | 2.8 | 3.7 | 3.0 | 23.0 | 2.9 | 3.5 |
| Track | 5.1 | 5.2 | 6.7 | 4.7 | 5.4 | 4.4 | 5.7 | 6.9 | 3.9 | 5.2 | 5.8 |
| Unemployment rate | 0.0 | -0.1 | 0.1 | -0.1 | 0.0 | 0.0 | -0.1 | 0.0 | -0.1 | 0.0 | 0.1 |
| Oil consumption | 1.6 | 1.8 | 1.5 | 1.6 | 1.6 | 0.7 | 2.1 | 1.5 | 1.4 | 1.4 | 2.3 |
| Investment | 3.4 | 3.8 | 3.4 | 3.9 | 3.6 | 2.9 | 4.1 | 3.8 | 3.7 | 3.6 | 4.4 |
| Consumption | 3.4 | 3.4 | 3.1 | 27.0 | 3.2 | 3.1 | 3.5 | 3.1 | 27.0 | 3.1 | 3.6 |
| Output (PPP) | 3.6 | 3.5 | 3.6 | 3.7 | 3.6 | 3.2 | 3.6 | 3.7 | 3.5 | 3.5 | 4.0 |
| Output per capita (PPP) | 1.8 | 1.7 | 2.2 | 2.5 | 2.1 | 1.4 | 1.8 | 2.4 | 23.0 | 20.0 | 2.3 |
| Financial markets | |||||||||||
| Capital flows | 0.3 | 0.2 | 0.5 | 0.3 | 0.3 | 0.2 | 0.5 | 0.4 | -0.6 | 0.1 | 0.2 |
| Credit | 3.6 | 6.5 | 4.1 | 3.3 | 4.4 | 3.6 | 6.8 | 4.2 | 3.5 | 4.5 | 5.2 |
| Equiy prices | -1.7 | 16.6 | 8.9 | 5.3 | 7.3 | -2.5 | 15.6 | 8.8 | 3.9 | 6.5 | 5.3 |
| House prices | 1.6 | 2.8 | 1.7 | 1.6 | 1.9 | 2.0 | 3.2 | 1.9 | 1.6 | 2.2 | 1.8 |
| Fisancil condiions | 0.2 | 0.5 | 0.1 | -0.1 | 0.1 | 0.2 | 0.5 | 0.1 | -0.1 | 0.2 | 0.1 |
| Illation | -0.2 | -0.3 | -0.1 | 0.1 | -0.1 | 0.3 | 0.0 | 0.0 | 0.0 | 0.1 | 0.0 |
| Interest rates, confidence, and uncertainty | |||||||||||
| Nominal interest rate | 1.0 | -0.2 | -0.3 | 0.0 | 0.1 | 1.2 | 0.0 | -0.2 | 0.1 | 0.2 | 0.0 |
| Real interest rate | 1.0 | 0.0 | -0.2 | -0.1 | 0.2 | 0.8 | 0.0 | -0.2 | 0.1 | 0.2 | 0.0 |
| Busisess confidence | 0.1 | 0.2 | 0.0 | 0.1 | 0.1 | -0.2 | 0.0 | 0.0 | -0.1 | -0.1 | 0.0 |
| Policy uncertainly | … | 0.1 | 2.7 | 6.3 | 3.0 | 1.0 | … | 2.8 | 7.7 | 15.0 | 3.8 |
| Policies | |||||||||||
| Government expenditure | 4.2 | 3.0 | 4.1 | 2.8 | 3.5 | 4.3 | 3.2 | 4.0 | 29.0 | 3.6 | 4.8 |
| Policy rate | 1.0 | -0.3 | -0.3 | 0.1 | 0.1 | 1.2 | -0.1 | -0.2 | 0.1 | 0.2 | 0.0 |
The post-2009 global expansion. The current global expansion has registered average annual per capita GDP growth similar to those of previous episodes. However, it is distinguished by the lowest average growth in industrial production of all four expansions (when their initial years are excluded). The current expansion has also seen the weakest growth in global trade. Since 2011, average annual global trade growth has been 3.9 percent, well below the 5.2 percent average of previous global expansions. This weakening of trade growth has reflected a combination of factors, including weak demand growth in advanced economies, shifts in the composition of global demand, the maturation of global supply chains, and increased trade tensions between major economies, particularly involving the United States.
The current expansion has also seen the lowest growth in capital flows. Sluggish investment growth has been reflected in a decline in global capital flows since 2011 (Table 9). Capital flows to EMDEs have been sluggish, with repeated spikes in borrowing costs since mid-2013. Following an initial rebound after the recession, global capital flows have declined.
Weak expansion in advanced economies. The expansions following the 1991 and 2009 global recessions were the weakest of the four episodes in advanced economies. Despite the marked difference in the severity of these two recessions, their underlying causes and the evolution of activity during the following expansions share remarkable similarities for advanced economies (Figure 11.B; Table 10). Both recessions were associated with disruptions in credit and housing markets in the major advanced economies. In particular, the global expansion following the 1991 recession was adversely affected by the ripple effects of collapses in credit and asset markets in the United States and Japan. Similarly, the deep 2009 global recession was associated with substantial problems in credit and housing markets in the United States and a number of other advanced economies, including France, Denmark, Iceland, Ireland, Spain, the United Kingdom, and the Baltic countries.
The expansions following the 1991 and 2009 global recessions were also both slowed by particular challenges in Europe. Both the latest expansion and the one following the 1991 global recession were hampered by problems in the European Monetary System – the ERM crisis in 1992 and crises in the euro area in 2011-13. There were downturns in many European countries in the wake of the ERM crisis, which involved significant increases in interest rates in several countries and which took a severe toll on confidence. The euro area debt crisis in 2012-13 also weakened growth in several of its members. Growth in the euro area has remained generally sluggish throughout the expansion, with the highest annual output growth of 2.4 percent in 2017, leaving unemployment still high in a number of countries.
Reversal of fortunes for EMDEs. The latest global expansion was the strongest one for EMDEs in terms of per capita output growth. However, after enjoying the strongest recovery immediately following the 2009 global recession, EMDEs have since experienced a protracted slowdown following the drop in commodity prices in 2012 (Figure 11.B; Tables 10 and 11). EMDE GDP growth slowed from 7.4 percent in 2010 to a trough of 3.8 percent in 2015 (Didier et. al. 2015). The growth slowdown during 2011-15 was synchronous (affecting more than three-fifths of EMDEs) and protracted, with the steepest slowdowns in LAC and the mildest in SAR. In LICs, GDP growth slowed from 6.2 percent in 2012 to a trough of 5 percent in 2016. In 2017, many EMDEs saw a mild cyclical recovery, led by growth in exports and investment as global manufacturing and trade picked up, but EMDE growth has since weakened again.
Figure 11.B. Global expansions by country group
Table 10. Main features of global expansions (by country group)
| Global expansions | Global expansions (excluding initial years) | All years | |||||||||
| 1976-81 | 1983-90 | 1992-2008 | 2010-19 | Average | 197741 | 1984-90 | 1993-2008 | 2011-19 | Average | ||
| Advanced economies | |||||||||||
| Output | 3.3 | 3.7 | 2.5 | 1.9 | 2.9 | 3.0 | 3.8 | 2.5 | 1.8 | 2.8 | 3.3 |
| Output per capita | 2.6 | 3.1 | 1.8 | 1.4 | 2.2 | 2.3 | 3.2 | 1.8 | 1.4 | 2.2 | 2.4 |
| Industrial production | 3.5 | 3.5 | 2.0 | 1.8 | 2.7 | 2.7 | 3.7 | 2.1 | 1.2 | 2.4 | 3.0 |
| Track | 5.6 | 6.4 | 6.1 | 43.0 | 5.6 | 4.6 | 6.9 | 6.2 | 3.4 | 5.3 | 5.9 |
| Unemployment rate | 0.2 | -0.2 | 0.0 | -0.3 | -0.1 | 0.3 | -0.3 | -0.1 | -0.4 | -0.1 | 0.0 |
| Output (PPP) | 3.4 | 3.8 | 2.6 | 2.0 | 2.9 | 3.1 | 3.8 | 2.6 | 1.9 | 2.8 | 3.3 |
| Output per capita (PPP) | 2.6 | 3.1 | 1.9 | 1.5 | 2.3 | 2.3 | 3.2 | 2.0 | 1.4 | 2.2 | 2.5 |
| Credit | 3.5 | 6.8 | 3.4 | 1.2 | 3.7 | 3.5 | 7.1 | 3.5 | 1.5 | 3.9 | 4.7 |
| Government expenditure | 3.9 | 3.3 | 2.9 | 1.1 | 2.8 | 4.1 | 3.3 | 2.8 | 1.2 | 2.8 | 4.2 |
| Policy rate | 1.0 | -0.3 | -0.3 | 0.0 | 0.1 | 1.2 | -0.1 | -0.3 | 0.0 | 0.2 | 0.0 |
| EMDEs | |||||||||||
| Output | 4.0 | 3.0 | 4.7 | 4.9 | 4.1 | 3.5 | 3.2 | 4.9 | 4.6 | 4.0 | 4.7 |
| Output per capita | 2.0 | 0.9 | 3.2 | 3.5 | 2.4 | 1.4 | 1.1 | 3.4 | 3.3 | 2.3 | 2.8 |
| Industrial production | ... | ... | 5.6 | 5.1 | 5.3 | ... | ... | 5.8 | 4A | 5.1 | 5.0 |
| Trade | 4.2 | 2.3 | 8.1 | 5.5 | 5.0 | 4.1 | 2.8 | 8.6 | 4.7 | 5.0 | 5.6 |
| Underemployment rate | -2.0 | 0.0 | 0.1 | 0.0 | -0.5 | -2.0 | 0.1 | 0.1 | 0.0 | -0.4 | 0.0 |
| Output (PPP) | 4.0 | 3.2 | 4.8 | 5.1 | 4.3 | 3.4 | 3.3 | 5.1 | 4.9 | 4.2 | 4.8 |
| Output per capita (PPP) | 1.9 | 1.1 | 3.3 | 3.8 | 2.5 | 1.4 | 1.2 | 16.0 | 3.6 | 2.4 | 2.9 |
| Credit | 6.1 | 0.8 | 10.4 | 10.1 | 6.9 | 6.1 | 1.9 | 10.1 | 9.9 | 7.0 | 7.8 |
| Government expenditure | 6.8 | 1.4 | 7.1 | 5.7 | 5.3 | 5.8 | 2.4 | 7.2 | 5.7 | 5.3 | 5.8 |
| Poky rate | 0.3 | 0.3 | -0.3 | 0.0 | 0.1 | 0.3 | 0.4 | -0.2 | 0.0 | 0.1 | 0.0 |
| LICs | |||||||||||
| Output | 1.3 | 2.5 | 4.0 | 5.9 | 3.4 | 1.4 | 2.6 | 4.3 | 5.8 | 3.5 | 3.8 |
| Output per capita | -1.1 | -0.4 | 1.1 | 3.0 | 0.6 | -1.1 | -0.3 | 13.0 | 2.9 | 0.7 | 1.1 |
| Trade | 1.7 | 4.5 | 7.4 | 8.8 | 5.6 | 2.5 | 5.0 | 8.2 | 8.2 | 6.0 | 6.0 |
| Output (PPP) | 1.6 | 2.6 | 4.2 | 6.1 | 3.6 | 1.6 | 2.8 | 4.5 | 6.0 | 3.7 | 3.9 |
| Output per capita (PPP) | -0.9 | -0.3 | 1.3 | 3.1 | 0.8 | -0.8 | -0.1 | 1.6 | 3.0 | 0.9 | 1.2 |
Table 11. Main features of global expansions (by region)
| Global expansions | Global expansions (excludiig initial years) | All years | |||||||||
| 1976-81 | 1983-90 | 1992-2008 | 2010-19 | Average | 1977-81 | 1984-90 | 1993-2008 | 2011-19 | Average | ||
| East Asia and Pacific | |||||||||||
| Output | 6.8 | 8 | 8.7 | 7.1 | 7.6 | 7.5 | 8 | 8.5 | 6.8 | 7.7 | 7 |
| Output per capita | 5 | 6 | 7.6 | 6.3 | 6.2 | 5.7 | 6.1 | 7.5 | 6.1 | 6.3 | 5.4 |
| Industrial production | ... | 12.7 | 10.4 | 8 | 10.4 | ... | 12.7 | 10.4 | 7.3 | 10.1 | 9.9 |
| Trade | 10.2 | 10.1 | 12.5 | 7.2 | 10 | 11.7 | 10.4 | 12.2 | 6 | 10.1 | 8.6 |
| Output (PPP) | 6.8 | 7.7 | 8.3 | 7 | 7.5 | 7.4 | 7.8 | 8.2 | 6.7 | 7.6 | 6.9 |
| Output per capita (PPP) | 5 | 5.8 | 7.3 | 6.3 | 6.1 | 5.7 | 5.8 | 7.2 | 6 | 6.2 | 5.3 |
| Europe and Central Asia | |||||||||||
| Output | 2.8 | 1.9 | 2.2 | 3.2 | 2.5 | 2.1 | 1.6 | 2.9 | 3 | 2.4 | 3.2 |
| Output per capita | 1.9 | 1.1 | 2.1 | 2.7 | 1.9 | 1.2 | 0.8 | 2.8 | 2.5 | 1.8 | 2.6 |
| Industrial production | ... | ... | 3.5 | 4.2 | 3.9 | ... | ... | 3.9 | 3.6 | 3.7 | 3.3 |
| Trade | 4.5 | 1 | 6.2 | 5 | 4.2 | 4.3 | 1.0 | 8 | 4.2 | 4.4 | 5 |
| Output (PPP) | 2.8 | 1.9 | 2.1 | 3 | 24 | 2.1 | 1.5 | 2.8 | 2.9 | 2.3 | 3.2 |
| Output per capita (PPP) | 1.9 | 1.1 | 2 | 2.6 | 1.9 | 1.2 | 0.7 | 2.7 | 2.5 | 1.8 | 2.6 |
| Latin America and the Caribbean | |||||||||||
| Output | 4.9 | 2 | 3.2 | 2.2 | 3.1 | 4.7 | 2.6 | 3.3 | 1.7 | 3.1 | 3.9 |
| Output per capita | 2.5 | -0.1 | 13 | 1.1 | 1.3 | 2.3 | 0.6 | 1.8 | 0.6 | 1.3 | 1.8 |
| Industrial production | ... | ... | 3 | 0.5 | 1.7 | ... | ... | 3.1 | -0.4 | 1.4 | 1.7 |
| Trade | 7.5 | 4.6 | 7.2 | 4.6 | 6 | 8.6 | 6.1 | 6.9 | 3.2 | 6.2 | 5.5 |
| Output (PPP) | 4.8 | 1.9 | 3.2 | 2.4 | 3.1 | 4.7 | 2.5 | 3.3 | 1.9 | 3.1 | 3.8 |
| Output per capita (PPP) | 2.4 | -0.2 | 13 | 1.2 | 1.3 | 2.3 | 0.4 | 1.8 | 0.8 | 1.3 | 1.8 |
| Middle East and North Africa | |||||||||||
| Output | 4.5 | 1.8 | 4.1 | 3 | 3.3 | 2.3 | 2.3 | 4 | 2.8 | 2.8 | 5 |
| Output per capita | 1.4 | -1.3 | 2.2 | 0.9 | 0.8 | -0.8 | -0.8 | 2.1 | 0.7 | 0.3 | 2A |
| Industrial production | ... | ... | ... | ... | |||||||
| Trade | 0.7 | 0 | 5.4 | 3 | 2.3 | -0.4 | 0.6 | 5.3 | 3.2 | 2.2 | 5.1 |
| Output (PPP) | 4.1 | 2 | 4 | 2.6 | 3.2 | 1.8 | 2.3 | 3.9 | 2.5 | 2.6 | 4.9 |
| Output per capita (PPP) | 1 | -1.1 | 2.1 | 0.7 | 0.7 | -1.3 | -0.7 | 2.1 | 0.5 | 0.1 | 2.4 |
| South Asia | |||||||||||
| Output | 4.1 | 5.6 | 6.1 | 6.8 | 5.7 | 4.5 | 5.4 | 6.2 | 6.5 | 5.6 | 5 |
| Output per capita | 1.6 | 3.1 | 4.2 | 5.5 | 3.6 | 3.0 | 4.2 | 5.2 | 3.6 | 3 | |
| Industrial production | ... | ... | ... | ... | ... | ||||||
| Trade | 7.2 | 5.1 | 13 | 6.9 | 8 | 7 | 4.5 | 12.9 | 6.1 | 7.6 | 6.6 |
| Output (PPP) | 4.1 | 5.6 | 6.1 | 6.8 | 5.7 | 4.5 | 5.4 | 6.2 | 6.5 | 5.7 | 5 |
| Output per capita (PPP) | 1.7 | 3.2 | 4.2 | 5.5 | 3.6 | 2.0 | 3.0 | 4.3 | 5.2 | 3.6 | 3 |
| Sub-Saharan Africa | |||||||||||
| Output | 2.5 | 2.2 | 4 | 3.7 | 3.1 | 2 | 2.7 | 4.3 | 3A | 3.1 | 3.8 |
| Output per capita | -0.2 | -0.7 | 1.3 | 0.9 | 0.3 | -0.7 | -0.2 | 1.6 | 0.6 | 0.3 | 1.1 |
| Industrial production | ... | ... | ... | ... | ... | ... | ... | ... | ... | ... | ... |
| Trade | 3.9 | 1 | 7.2 | 3.6 | 3.9 | 4.9 | 2.2 | 7.9 | 3.1 | 4.5 | 4.3 |
| Output (PPP) | 2.5 | 2.3 | 4.1 | 3.9 | 3.2 | 2 | 2.9 | 4.4 | 3.6 | 3.2 | 3.9 |
| Output per capita (PPP) | -0.3 | -0.6 | 1.4 | 1.1 | 0.4 | -0.8 | -0.1 | 1.7 | 0.8 | 0.4 | 1.1 |
Weakening global economic growth has coincided with country-specific challenges in some large EMDEs. In China, for example, with the unwinding of policy stimulus, efforts have also been also made to guide the economy away from investment- and export-driven growth toward more balanced growth that relies more on consumer spending. The resultant slowdown in China, from growth of 8.9 percent on average during the previous global expansions to 6.6 percent in 2018, has weighed on growth in its trading partners and in commodity exporters. In some other major EMDEs, episodes of policy uncertainty, social tensions, geopolitical events, and civil wars have caused sharp losses in confidence.
Repeated short-term growth disappointments. The latest global recovery has also seen repeated downgrades in short-term global growth forecasts (Figure 12). Over 2010-19, on average, current-year growth projections in consensus forecasts have been downgraded from a year earlier in around 52 percent of countries. Downgrades affected growth forecasts for both advanced economies (49 percent of countries) and EMDEs (54 percent of countries), but with forecasts for EMDEs revised down by a wider margin. For EMDEs, since 2009, growth has been revised down by an average of 0.2 percentage point for the current year forecast, relative to the one made a year earlier.
Diminishing long-term growth projections. The 2009 global recession marked a turning point in long-term (ten-years ahead) global growth projections. Long-term forecasts for global GDP growth increased from 3 percent in 1998 to 3.3 percent in 2008. Since then, they have steadily declined, to 2.5 percent in 2019. Growth forecasts for advanced economies began to be downgraded after the 1991 global recession. After a brief period of upgrades in the late 1990s, they resumed their gradual decline in the early 2000s. In contrast, EMDEs enjoyed improving growth prospects up to the 2009 global recession. Since then, long-term forecasts have materially deteriorated for both groups of countries.
Prior to the 2009 global recession, growth prospects were supported by a rapid expansion of investment, trade, and financial flows. However, during the most recent global expansion, cyclical factors, such as the anemic recovery in advanced economies, a sharp collapse in commodity prices, and weak investment growth, have been compounded by structural weaknesses, including slower productivity growth, and a slowdown in the growth of working-age populations.
These structural factors have been eroding global potential growth – the growth rate that the global economy would sustain at full capacity utilization and full employment. In 2013-17, global potential growth is estimated to have been roughly 1 percentage point a year lower than a decade earlier, as a result of weaker productivity growth, sluggish expansion of investment, and a broadening slowdown in working-age population growth. Annual potential growth estimates for advanced economies were reduced to 1.4 percent on average in 2013-17, from 2.2 percent a decade earlier. Potential output growth in EMDEs is also estimated to have slowed, from 5.9 percent a year in the mid-2000s to 4.8 percent a year in 2013-17, reflecting the effects of weak investment, adverse demographic trends, and slower productivity growth.
In light of the protracted weakness of economic growth, together with chronically low inflation (persistently below target in most cases), despite unprecedented monetary policy accommodation maintained over several years and historically low long-term interest rates, some observers have argued that advanced economies have been facing "secular stagnation", owing to structural weakness in aggregate demand. Many factors may have contributed to such demand weakness, including increased saving originating partly from demographic factors and reduced investment spending stemming partly from the reduced costs of capital goods, which have increasingly embodied information technology. Financial crises may also have contributed through higher risk aversion, increased costs of financial intermediation, and increased debt overhangs. Recent research concludes that, in light of the Japanese experience after its banking crisis in the early 1990s, some major euro area economies might suffer a long period of stagnation because of structural headwinds associated with demographic trends and persistent weakness in productivity growth.