The Lasting Consequences of the Financial Crisis

The financial crisis of the USA triggered a deep slump in economic activity in all industrialised countries, which has not yet been overcome. This contradicts historical experience according to which the economic consequences of a financial crisis are overcome after ten years at the latest and the political consequences – radicalisation and a shift to the right – after about five years. Although the economy has recently grown back to the pre-crisis trend, the level of economic activity in almost all industrialised countries is still around a tenth lower; medium-term forecasts do not expect the economy to catch up either, but rather to drift further. It is unclear to what extent the decline in the trend is the result of weak demand, delayed adjustment, accumulation of unsettling shocks or a structural break. The analysis suggests that elements of a structural break dominate: the western industrialised countries have lost dominance on the world markets, and policies tend to counteract with protectionist measures. Companies are now likely to regard the reduced level of activity as "normal" and have adjusted their plans accordingly.