The first word that comes to mind is resilience. Five years ago, many feared a repetition of the Great Depression of the 1930’s. Indeed, as Barry Eichengreen and Kevin O’Rourke have shown, the collapse of world industrial production in 2008-2009 initially tracked that of 1929-1930 very well. The fall in world trade volume and equity indices was even faster.
Fortunately, the historical paths subsequently diverged. Five years after the 1929 crash, the world was still in depression and trade had contracted sharply. Today, the United States is still going through its worst employment recession since World War II, and Europe’s GDP has not returned to pre-crisis levels, but global output has grown 15% since 2008, and world trade is up more than 12%.
The world avoided a Great Depression II mainly because there was no global financial crisis this time. What occurred in 2008 was a US crisis that contaminated Europe, because the two financial systems were almost completely integrated. The rest of the world, however, was largely immune. China and other emerging countries were hit by a severe demand shock that affected their exports, but not by the financial turmoil. On the contrary, the value of US government bonds that China and others held rose in response to the drop in interest rates.
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Jean Pisani-Ferry
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