Great Recession

The Great Recession was a period of contraction in economies around the world (particularly in the western world and associated countries) that occurred from late 2007 to mid-2009, overlapping with the closely related 2008 financial crisis. The scale and timing of the recession varied from country to country (see map). At the time, the International Monetary Fund (IMF) concluded that it was the most severe economic and financial meltdown since the Great Depression of the 1930s.

The Great Recession was caused by many weaknesses that slowly developed in the global financial system, along with a series of concurrent and triggering events that began with the bursting of the United States housing bubble, which had formed in 2005 and lasted until 2012. When housing prices fell and homeowners began to abandon their mortgages, the value of mortgage-backed securities held by investment banks declined sharply in 2007–2008, causing several banks to collapse or be bailed out in September 2008. This 2007–2008 phase became known as the subprime mortgage crisis, referring to borrowers of lesser payment capacity as subprime debtors.

The combination of banks being unable to provide funds to businesses (also known as the credit crunch) and homeowners forsaking or paying down their debts (rather than borrowing and spending) resulted in the Great Recession. In the U.S., the recession officially began in December 2007 and lasted until June 2009, thus extending over 19 months. As with most other recessions, it appears that no known formal theoretical or empirical model succeeded in accurately predicting the onset of this recession, except for minor signals in the sudden rise of forecast probabilities, which were still well under 50%.

The recession was not felt equally around the world.