IMF reveals crisis legacy is slower growth, more debt, fewer babies

The global financial crisis left lasting scars on the world economy, including slower growth, higher government debt and even lower fertility rates, the International Monetary Fund said.

A decade after Lehman Brothers filed for bankruptcy in 2008, output in more than 60 percent of the world’s economies remains below where it would have been if the crisis hadn’t occurred, the fund said in a report yesterday. The drop was steepest in the 24 countries that experienced financial crises, the Fund said in an analytical chapter accompanying its latest World Economic Outlook. The full outlook, including the latest forecast for global growth, will be released Oct. 9 at the IMF’s annual meetings in Indonesia.

“The 2008 financial crisis had its roots in the U.S. housing boom of the preceding half-decade,” the IMF said. “Its impact was seen worldwide from shuttered maquiladora factories in Mexico to the restructuring of regional savings and loan cajas in Spain and extended joblessness for migrant workers in China’s Pearl River Delta.”

The economies that suffered the biggest output and job losses in the initial aftermath also posted the biggest increases in income inequality, a trend that may hold clues about the surge in anti-establishment sentiment and growing appeal of protectionism around the world, the IMF said.

The crisis even had a dampening effect on two factors not usually associated with the banking system: migration and fertility. Advanced economies experienced a surge of immigrants in the decades leading up the crisis, but that trend reversed in the aftermath, according to the Fund. Meanwhile, the number of births per woman fell in advanced nations.

To contain the damage, governments ramped up spending and central banks resorted to unconventional methods to keep credit flowing, including massive bond purchases. The world’s median debt-to-gross domestic product among governments has risen to 52 percent from 36 percent before the crisis, according to the IMF. Central-bank balance sheets are “several multiples” bigger than before Lehman went under.

The extraordinary policy efforts following the crisis prevented an even more severe drop in output and employment, averting a second Great Depression, the IMF said. Still, the extended period of ultra-low interest rates has stoked a buildup in vulnerabilities in the financial sector, it said. Bloomberg