The Great Recession of 2008-2009: Causes ... - Index of - IZA

However, despite these interventions, the global financial crisis quickly evolved into a global
jobs crisis, as the crisis-induced credit crunch strangled the real economy and trade flows
collapsed. Unemployment in OECD countries has surged, while in countries without social
security schemes, the downturn has threatened to push millions into poverty.
Many – but by no means all – developing and emerging economies felt the deleterious effects
of the US recession by the end of 2008. The typical outcome was a growth deceleration
(ranging from mild to major) in many parts of the developing world, but there were cases of
outright recessions too. Hard-hit countries include Armenia, Mexico, South Africa, Turkey,
the Baltic States, and Ukraine. At the same time, the two most successful globalizers of
recent times have avoided a major downturn, which has been crucial for kick-starting the
recovery in 2009. China has, in particular, managed to keep their economy growing in 2009
at a rate of 8.7 per cent, which was supported by the massive stimulus package put together
by the Chinese authorities (amounting to US$585 billion). With a smaller stimulus, the Indian
economy has also proven to be resilient thanks to strong domestic demand, with growth only
falling to 6.7 per cent in 2009.
Nonetheless, the world economy enters 2010 in an environment fraught with considerable
degree of uncertainty. While the worst seems to be over, and while one hears proclamations
of a robust recovery, the jury is still out on the lessons and legacies of the tumultuous
economic events of 2008 and 2009. How apposite is the epithet of the ‘Great Recession’?
What were the historical and global circumstances that led to its seemingly sudden
emergence? To what extent were policy errors by past US administrations responsible for the
crisis? How have policymakers across the world responded to such economic volatility? How
effective have these responses been? What is the way forward in a post-crisis world? These
are the questions that are probed in this paper. In raising these questions and seeking to
respond to them, the paper does not intend to offer a blueprint for a post-crisis world, nor
does it aim to offer policy prescriptions that seek to uphold the institutional agenda of any
particular international organization or national government.
This paper provides both an historical perspective on the period leading up to the crisis and
insights into the events surrounding the crisis of 2007. This task is undertaken in section 2,
which discusses the notions of the ‘Lost Decades’ and the ‘Great Moderation’, and the
5