The permanent scars of recession

Chris Giles was on excellent form in this article in the Financial Times considering the economic fall-out from the recession. He looks at the causes of hysteresis effects arising from the recession - including a long term fall in employment rates, reduction in the size of the capital stock, a weaker pace of innovation and reductions in productivity.

“The emerging consensus - for the advanced world at least - is that they will be deep and long-lived. In its recent World Economic Outlook, the International Monetary Fund examined 88 historical banking crises between 1970 and 2002 and found, on average, that countries do not earn back all the lost ground after the recession slips into people’s memories. In its database, it found that seven years after a crisis, output had fallen by 10 per cent compared with the pre-crisis path. Economic growth generally returned to the pre-crisis rate, but the loss of output seems permanent.”