Blog
David Smith on Shifting Sands in the Global Economy
8th February 2011
David Smith from the Sunday Times was on fine form in his talk to the Global Economy Student Enrichment event at Fulham yesterday. I have some brief notes below on some of his key themes and the pdf version of his presentation can be downloaded from the link at the bottom of the blog
* The global crisis has accelerated existing trends in the world economy not least the shift of output and wealth to emerging nations (largely) in the East
* Long term rise in bank lending as a share of GDP - this was an exceptionally long credit boom and sub prime was just a small part of it
* Most of the rise in debt was within financial sector which lent to itself and which then spectacularly decided not to lend to itself when liquidity evaporated
* The housing recession in the States brought the house of cards down - a house of cards made unstable b excessive leverage and miss-pricing of risk
* The global financial crisis (GFC) brought a dramatic policy response by central banks - an extraordinary amount of official support to allow the banks to continue operating
* Loss of confidence in finance directly affected world trade which collapsed in 2009 and revealed the extent of deeply integrated global supply chains
* Things were in a terrible state two years ago
* And the scars of this crisis are so much more visible in the USA not least in unemployment and in rising relative poverty and dependence on food stamps
* Important to realise that the lending capacity of the banking system has shrunk and this is having a major effect on the strength and durability of the recovery - banks remain risk averse and must still improve the asset side of their balance sheets
* Financial crisis will inhibit the ability of developed countries to grow not least because of the scale of the rise in sovereign debt
* UK seems to have public finances that are very cyclically sensitive - slow growth will be hugely damaging to the coalition’s fiscal plans
* It will take a generation to get over the fiscal consequences of this crisis and bring debt/GDP ratios back down to sustainable levels
* The acceleration of growth in emerging economies is relatively recent
* There are some green shoots suggesting the world economy is over the worst
* But the crisis has fast forwarded the structural changes in economic power and influence in the world economy.
Download David’s presentation here
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.