Are Recessions Disappearing? Why the World’s Recession Might Be a Problem and How India May Stands Strong

The Economist made an interesting observation this week. It says that apart from the pandemic slump in 2020, the world hasn’t really had a “normal” recession since the 2008 financial crisis. And even after COVID, the global economy has been growing at roughly 3% a year since 2022. Unemployment is low. Company profits are solid. So it almost feels like we’re living through a “recession recession” or a world where recessions have gone missing.

Sounds pretty good, right?

Well, The Economist isn’t so sure. It argues that economies sometimes need small recessions, just like the body needs an occasional detox.

So yeah, recessions are a bit like detoxes for capitalism. They trigger something economists call “creative destruction”. If you read our recent story on why the Economics Nobel went to Joel Mokyr, Philippe Aghion and Peter Howitt, you’ll remember what that means. It’s simply the old making way for the new. When weak or outdated businesses shut down, the people, money and resources tied up in them naturally flow to stronger, more promising companies. And that shift ends up strengthening the whole economy.

And interestingly, research shows that startups born during recessions often outperform those launched in boom years. Microsoft, Apple and Uber are all classic examples.

Now, some rich countries, especially the US, actually look ready for a mild “detox”. Not because everything is crashing, but because a few things look stretched. The US government’s debt has crossed $38 trillion for the first time ever. Nearly 30% of American household wealth is sitting in stocks, which is a record high. And there’s a massive rush of money into AI companies, some of which may not have the strongest long-term prospects.

But modern governments rarely sit back and let recessions run their natural course. They intervene aggressively by supporting households, banks and companies whenever the economy shows signs of wobbling. That prevents downturns, but it also means piling on more public debt.

Which makes us wonder....what about India?

By the technical definition, India hasn’t had a homegrown recession in roughly 40 years. If we ignore the COVID shock (which hit every country), our last real recession was in 1980. The Iranian Revolution and the Iran-Iraq war pushed global oil prices up, India’s inflation shot to nearly 29%, and GDP shrank by around 5%. But after that, India grew steadily through liberalisation, the IT boom, foreign investment inflows, startup growth, digitisation and finally the payments revolution.

Today, India looks relatively stable. Inflation has dropped to a 13 year low of 0.25% recently. Our debt-to-GDP ratio hovers near 81% and is expected to gradually decline. GDP growth is stronger than most big emerging economies. And while market valuations do look stretched, much of that would correct itself naturally if the hype subsided. It’s unlikely to trigger a recession as long as the underlying companies remain fundamentally strong. A bit of selective investing and caution should keep things healthy.

Meanwhile, countries that might actually need a “detox” are working overtime to avoid one. For context, rich-world public debt has climbed to levels not seen in more than two centuries because governments keep writing cheques to prevent downturns. And yet, J.P. Morgan says that the probability of a US or global recession in 2025 has fallen from 60% to 40%.

So maybe we’re just building up more debt and delaying a deeper crash. Or maybe policymakers will keep kicking the can down the road for a while. Until then, enjoy this strange “recession recession” while it lasts.

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