The Impacts of Global Financial Crisis
The Impacts of Global Financial Crisis
Financial systems can contribute to economic development by providing people with useful tools for risk management, such as credit for productive investments, instruments for saving and insurance, and payments services. At the same time, when financial institutions fail to manage the risks they retain, they can create severe financial crises with devastating social and economic effects, especially for the world’s most vulnerable people.
Crises can hit hard the weakest members of the society, particularly the poor, elderly, young, and women, who are not well-equipped to cope with the consequences of rising prices, eroding savings and asset values, loss of jobs, and reduction in core public services, such as social welfare, health care, and education.
The global financial crisis that has shaken the world economy since late 2007 has transformed the lives of many individuals and families beyond imagination. The bankruptcy of a US investment bank, Lehman Brothers, in 2008 turned a severe credit crunch into the worst financial crisis since the Great Depression, resulting in an unprecedented dislocation in financial markets and damaging stability and confidence in many advanced financial systems.
The unprecedented pouring of financial support from national governments and monetary authorities may have limited the magnitude of a deeper collapse in economic growth, but also caused a rapid fall in many countries’ fiscal balances, reducing the fiscal room and governments’ ability to further support weak economic activity. As economic activity further weakened and a massive number of jobs were lost around the world, unemployment rates climbed to unprecedented levels. Countries with weak institutional capacity and limited fiscal room have been particularly hurt.
SOCIAL
Product and labor market channel:
Financial crises weaken economic activity, dampen consumption and investment demand, and result in sustained declines in
Financial systems can contribute to economic development by providing people with useful tools for risk management, such as credit for productive investments, instruments for saving and insurance, and payments services. At the same time, when financial institutions fail to manage the risks they retain, they can create severe financial crises with devastating social and economic effects, especially for the world’s most vulnerable people.
Crises can hit hard the weakest members of the society, particularly the poor, elderly, young, and women, who are not well-equipped to cope with the consequences of rising prices, eroding savings and asset values, loss of jobs, and reduction in core public services, such as social welfare, health care, and education.
The global financial crisis that has shaken the world economy since late 2007 has transformed the lives of many individuals and families beyond imagination. The bankruptcy of a US investment bank, Lehman Brothers, in 2008 turned a severe credit crunch into the worst financial crisis since the Great Depression, resulting in an unprecedented dislocation in financial markets and damaging stability and confidence in many advanced financial systems.
The unprecedented pouring of financial support from national governments and monetary authorities may have limited the magnitude of a deeper collapse in economic growth, but also caused a rapid fall in many countries’ fiscal balances, reducing the fiscal room and governments’ ability to further support weak economic activity. As economic activity further weakened and a massive number of jobs were lost around the world, unemployment rates climbed to unprecedented levels. Countries with weak institutional capacity and limited fiscal room have been particularly hurt.
SOCIAL
Product and labor market channel:
Financial crises weaken economic activity, dampen consumption and investment demand, and result in sustained declines in