Scars of 2008 financial crisis remain, and another crisis may be looming, the IMF warns

Scars of 2008 financial crisis remain, and another crisis may be looming, the IMF warns

The world economy is still exposed to risky government debt and is at risk of facing another financial meltdown, the IMF say. 

In a report released by the world’s lender of last resort, they claim the global economy is under threat, specifically referencing “ultralow interest rates” and surging debt levels as potential triggers for another crisis. 

Global debt levels are well above that of the last financial crisis of 2008, as the “median general government debt–GDP ratio stands at 52 percent, up from 36 percent before the crisis,” and the risk remains that unregulated parts of the financial system could cause a global panic. 

The report discusses global recovery ten years after the 2008 financial crisis and the signs that show another crisis could be on the horizon. 

The IMF say the crisis of 2008 has left lasting scars, with falling fertility rates in developed countries being one. As Ayako Kondo writes in her IZA World of Labor article, recessions can have a knock on effect on fertility. 

The IMF report notes that “elevated unemployment rates may lead to deferred decisions on marriage, having children, or both,” with the impact on fertility being related to postponed births. 

To tackle this issue, Kondo suggests that “family-friendly policies, such as improving childcare provision and family subsidies, can weaken the impact of labor market conditions and have positive effects on family formation.” 

Other lasting effects of the crisis include a reversal in net-migration, from high to low, in advanced economies and risk of decreased labor input in the future as a result of low fertility rates.

Warning signs that another crisis could be around the corner are also highlighted in the report, such as the persistence of the “doom loop,” where banks hold too great a share of state loans on their balance sheets.

Bendikt Hertz and Thijs van Rens comment in their IZA World of Labor report on the labor market in the UK, 2000–2016, that “the UK labor market suffered less and recovered better from the Great Recession than most other EU countries, with unemployment now below its pre-2008 recession level.” 

However, the IMF report suggests advanced economies have only made “a weak recovery” from the 2008 crisis and without a rise in investment, economies will remain vulnerable to financial stress. 

The IMF warns that “large challenges loom for the global economy to prevent a second Great Depression.”

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