Foundation Forum 2009 - Reflections on the recession

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How did we get into this?

The first signs that the extraordinary long period of global growth that started in the mid 1990s was coming to an end appeared in mid 2007. It was not, however, until the summer of 2008 that it became clear that the downturn would not be slow and temporary. Indeed, the subsequent collapse of many large financial institutions and potential collapse of many others, together with the swift fall in GDP and exceedingly rapid decline in world trade, indicated that something quite exceptional was happening.

There is no lack of explanations for the current recession, but rather a multitude of competing or complementary factors still not fully understood, and analysis of these remarkable times will surely engage economists for decades. The truly distinguishing characteristic of this recession is a globally synchronised banking crisis, which sparked off a remarkably severe global recession.

It is highly likely that the preceding, equally remarkable boom, together with significant shifts in the balance of global trade and capital flows that gained speed in these years, constitutes the macroeconomic background to the subsequent bust. That period was characterised by a prolonged period of strong non-inflationary growth, which began in the early 1990s. Global imbalances, expressed as massive current account deficits in some countries (especially the US) and correspondingly high surpluses in others (particularly China, but also the oil-exporting countries), became an increasingly distinguishing feature of the extended global boom. It is also fair to assume that the path to global stability lies in resolving the contradictions of the emerging new global economic and financial order.

Find out more about how Europe got into the recession and its impact on labour markets in the Forum background paper by Donald Storrie, Head of the Employment and Competitiveness Unit at Eurofound.


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