Transcript The Global Financial Crisis

Dr Tony Stokes
Senior Lecturer in Economics
AUSTRALIAN CATHOLIC UNIVERSITY
Strathfield
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How did the financial crisis begin?
 The financial crisis began in the US in the middle of
2007.
 Since 2006 - 40% of new U.S. mortgages were nonprime mortgages, often with very high loan-to-value
ratios and minimal documentation.
 It looked like until the middle of 2008 that global growth
would cushion the damage in the US.
 The latest stage of the financial crisis started in September
2008, when several important U.S. financial institutions
had financial problems with bad debts and a lack of
liquidity and closed.
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How did the financial crisis begin?
 Lehman Brothers’ decision to file for bankruptcy, in
particular, impacted global financial markets, worsened
the severe contraction in market liquidity and
heightening concerns about risks.
 This led to a rise in borrowing costs for both financial
and nonfinancial firms (see next slide)
 This also spread to other nations where financial
organisations had borrowed from these markets.
 The probability of debt defaulting in the US has
doubled in the last 12 months
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What are the effects of the global
financial crisis?
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What are the effects of the global
financial crisis?
The global financial crisis has led to falling share
markets, and instability in financial and foreign
exchange markets
This uncertainty has discouraged investment and
spending leading to falling economic growth rates
and rising unemployment levels.
The IMF predicts that the level of World GDP will fall to
3.4% in 2008 and fall further to 0.5% in 2009.
Advanced Economies are expected to have -2%
growth in 2009.
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What are the effects of the global
financial crisis?
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What are the effects of the global financial
crisis?
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What are the effects of the global
financial crisis?
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What are the effects of the global
financial crisis?
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What have been the governments’
response?
 Central banks in the advanced economies have taken
strong actions to cut policy rates and improve
credit provisions.
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What have been the governments’
response?
 Many governments have
announced fiscal
packages to boost their
economies.
 Fiscal stimulus in G-20
countries in 2009 is
projected to contribute
1.5 percent of GDP.
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What have been the governments’
response?
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When will it all end???
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Recovery will be slow
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When will it all end???
 The IMF has predicted that global recovery will be
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slow.
In 2010 global growth is projected to be 3.0%.
Advanced economies are expected to grow by only
1.1%.
The emerging and developing economies are
projected to grow by 5% in 2010 with China leading the
way with 8%.
These levels are still likely to lead to increased
unemployment rates at least until 2011.
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