Impact of the 2008 Global Financial Crisis
In order to present the impact of the 2008 global financial crisis, this chapter will first graphically compare the real GDP growth, total general government debt, unemployment rate, and consumer price inflation of the four economies during the time period from 2005 to 2010. Then, it elaborates on its impact on each economy individually in the sequence of China, Hong Kong, Singapore, and Taiwan.
At the onset of the financial crisis, many countries viewed it as a purely American subprime mortgage problem. Yet, the crisis rapidly developed and spread into a global economic shock. This resulted in the US government bailing out several large financial institutions, such as AIG, Fannie Mae, and Freddie Mac. In addition, coupled with the trouble in America, a number of European banks also failed and stock markets declined across the board (Altman 2009; Fackler 2008). Many Asian countries, far from the epicenter of the financial troubles, felt relatively safe at the beginning. This was especially true for the Greater China economies which held large foreign exchange surpluses at the time. Yet, that view quickly changed as the global economic activities declined over a short period of time. The two largest import regions, the USA and Europe, were in deep financial troubles. This caused international trade to drastically drop, credit to tighten, and direct foreign investments to be swiftly withdrawn, thus resulting in the domino effect of global recession. In the increasingly interconnected world, the Greater China economies were unable to escape unscathed from this financial crisis with their heavy reliance on international trade.
Following the outbreak of the financial crisis, in late 2008, the European Union proposed a European stimulus plan amounting to around US$256 billion or 1.5% of the European Union’s GDP—around 1.2% of the GDP from national budgets and 0.3% of the GDP from the EU and European Investment Bank budgets (Europa 2008). For the entire world, the estimated US$2 trillion total in stimulus packages amounted to approximately 3% of the world gross domestic product. This exceeded the call by the International Monetary Fund (IMF) for fiscal stimulus by 2% of the global GDP (Nanto 2009).
The impact of the 2008 global financial crisis on each economy can be easily observed from the following four graphs, namely, the percentage of real GDP growth per capita, total general government debt percentage of GDP, unemployment rate of labor force, and consumer price inflation.
KeywordsEconomic Crisis Europe Income Abate OECD
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