A lot more than you might think, according to the International Monetary Fund.
Their flagship publication, the World Economic Outlook, takes a look back at the last ten years since the global financial crisis and asks what the long-term effects of that crisis have been.
The fact that most of the world's economies went into recession is not news. Everyone knows that government debt in many countries has increased substantially. You probably also won't be surprised to learn that, of the 24 countries that had banking crises (think bank failures, emergency support, bailouts, etc.), 85% are still seeing slower economic growth than they did before 2008.
What's most interesting though is what else has happened in those countries that had financial crises. Ten years on, and particularly in advanced economies, the IMF finds three trends still hold true:
- Slower productivity growth: driven by lower levels of investment and slower adoption of new technologies.
- Lower levels of fertility: that weigh on the future potential for economic growth as populations decline.
- Higher levels of income inequality: which can contribute to widespread dissatisfaction (often with political consequences).
What's sobering here is that, although we are well into the recovery from the global financial crisis, its broader impact has a very long tail that might still be with us for years to come.
We've written recently about how public authorities are preoccupied with identifying the many potential sources of risk that could lead to the next financial crisis (cyber attacks, emerging market debt, take your pick...).
Given the costs of the last crisis, and the vulnerabilities we are still left with as a result, doing our best to avoid the next one becomes all the more important.
In the year following the 2008 financial crisis, economic activity declined in half of all countries in the world. Our World Economic Outlook shows that in many countries output is still well below levels that would have prevailed had output followed its precrisis trend. Moreover, there are also signs that the crisis may have had lasting effects on potential growth through its impact on fertility rates and migration, as well as on income inequality.