- Ten years after the collapse of Lehman Brothers, assessing to what extent major economies have fully recovered from the ensuing global financial crisis and the Great Recession very much depends on the perspective which is chosen
- A mixed picture emerges: in most countries per capita real GDP is higher than before the crisis
- But public sector debt hasn’t declined and growth has been slow, despite the expansionary policy stance
- Policy rates are still (very) low and central bank balance sheets are vastly bigger
- Policy leeway hasn’t been restored which implies that thinking about how to address the next downturn should be high on the agenda
Former Fed chairman Ben Bernanke, in his The courage to act – a memoir of a crisis and its aftermath, uses ‘The dam breaks’ as the title of the chapter describing the fruitless efforts to find a solution for Lehman Brothers which led to the company filing for bankruptcy at 1.45 a.m. EST on Monday 15 September 2007. The metaphor in the title reminds us to what extent Lehman’s collapse was an accelerator of a crisis which had been developing for a long time already. An accelerator which made it increasingly difficult to stop the spiral. To quote Bernanke: “It was a terrible, almost surreal moment. We were staring into the abyss.” Tellingly, Tim Geithner, who was running the Federal Reserve of New York at the time before becoming Treasury Secretary under Obama, starts his memoirs, aptly called Stress Test, with the struggle to stop the decline of the economy early on in 2009, rather than focussing on Lehman. Assessing ten years later, to what extent major economies have recovered from the global financial crisis and the Great Recession is important. After all, the US expansion, which started in July 2009 is by historical standards of a respectable age so evaluating where we are ten years later helps in gauging the resilience to a new downturn. However, this exercise is also difficult because it very much depends on the perspective chosen. Focussing on GDP, the labour market, balance sheets, asset prices, developing economies and policy leeway, what emerges is a mixed picture. Per capita real GDP is higher than before the crisis but growth has been slow despite the expansionary policy stance. In some countries, the unemployment rate, in particular long-term unemployment, remains above pre-crisis levels. Several developing economies have seen a significant increase in corporate debt in foreign currency. Public sector debt in advanced economies hasn’t declined, despite sustained growth and sharply declining interest rates. In conjunction with still (very) low policy rates and vastly bigger central bank balance sheets, this implies that policy leeway hasn’t been restored. It means that in the ‘new normal’ of, for structural reasons, slower potential GDP growth and lower interest rates than before, discussing how to address the next downturn should be high on the agenda.
BNP Paribas is regulated by the FSA for the conduct of its designated investment business in the UK and is a member of the London Stock Exchange. The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other investment. Information and opinions contained in the report are published for the assistance of recipients, but are not to be relied upon as authoritative or taken in substitution for the exercise of judgement by any recipient, they are subject to change without notice and not intended to provide the sole basis of any evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. No BNP Paribas Group Company accepts any liability whatsoever for any direct or consequential loss arising from any use of material contained in this report. All estimates and opinions included in this report constitute our judgements as of the date of this report. BNP Paribas and their affiliates ("collectively "BNP Paribas") may make a market in, or may, as principal or agent, buy or sell securities of the issuers mentioned in this report or derivatives thereon. BNP Paribas may have a financial interest in the issuers mentioned in this report, including a long or short position in their securities, and or options, futures or other derivative instruments based thereon. BNP Paribas, including its officers and employees may serve or have served as an officer, director or in an advisory capacity for any issuer mentioned in this report. BNP Paribas may, from time to time, solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager, underwriter or lender) within the last 12 months for any issuer referred to in this report. BNP Paribas, may to the extent permitted by law, have acted upon or used the information contained herein, or the research or analysis on which it was based, before its publication. BNP Paribas may receive or intend to seek compensation for investment banking services in the next three months from an issuer mentioned in this report. Any issuer mentioned in this report may have been provided with sections of this report prior to its publication in order to verify its factual accuracy. This report was produced by a BNP Paribas Group Company. This report is for the use of intended recipients and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without the prior written consent of BNP Paribas. By accepting this document you agree to be bound by the foregoing limitations. Analyst Certification Each analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the analyst's personal views about any and all of the issuers and securities named in this report, and (ii) no part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed herein. United States: This report is being distributed to US persons by BNP Paribas Securities Corp., or by a subsidiary or affiliate of BNP Paribas that is not registered as a US broker-dealer, to US major institutional investors only. BNP Paribas Securities Corp., a subsidiary of BNP Paribas, is a broker-dealer registered with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc. BNP Paribas Securities Corp. accepts responsibility for the content of a report prepared by another non-US affiliate only when distributed to US persons by BNP Paribas Securities Corp. United Kingdom: This report has been approved for publication in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas London Branch is regulated by the Financial Services Authority ("FSA") for the conduct of its designated investment business in the United Kingdom and is a member of the London Stock Exchange. This report is prepared for professional investors and is not intended for Private Customers in the United Kingdom as defined in FSA rules and should not be passed on to any such persons. Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited, Tokyo Branch, or by a subsidiary or affiliate of BNP Paribas not registered as a financial instruments firm in Japan, to certain financial institutions permitted by regulation. BNP Paribas Securities (Japan) Limited, Tokyo Branch, a subsidiary of BNP Paribas, is a financial instruments firm registered according to the Financial Instruments and Exchange Law of Japan and a member of the Japan Securities Dealers Association. BNP Paribas Securities (Japan) Limited, Tokyo Branch accepts responsibility for the content of a report prepared by another non-Japan affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited, Tokyo Branch. Hong Kong: This report is being distributed in Hong Kong by BNP Paribas Hong Kong Branch, a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas Hong Kong Branch is regulated as a Licensed Bank by the Hong Kong Monetary Authority and is deemed as a Registered Institution by the Securities and Futures Commission for the conduct of Advising on Securities [Regulated Activity Type 4] under the Securities and Futures Ordinance Transitional Arrangements. Singapore: This report is being distributed in Singapore by BNP Paribas Singapore Branch, a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas Singapore is a licensed bank regulated by the Monetary Authority of Singapore is exempted from holding the required licenses to conduct regulated activities and provide financial advisory services under the Securities and Futures Act and the Financial Advisors Act. © BNP Paribas (2011). All rights reserved.