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THE GLOBAL FINANCIAL CRISIS

THE GLOBAL FINANCIAL CRISIS

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THE GLOBAL FINANCIAL CRISIS

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  1. THE GLOBAL FINANCIAL CRISIS Dr Tony Stokes Senior Lecturer in Economics AUSTRALIAN CATHOLIC UNIVERSITY Strathfield Dr Tony Stokes - Economics at ACU National

  2. The Global Financial Crisis www.nicholsoncartoons.com.au Dr Tony Stokes - Economics at ACU National

  3. How did the financial crisis begin? • The financial crisis began in the US in the middle of 2007. • Since 2006 - 40% of new U.S. mortgages were non-prime mortgages, often with very high loan-to-value ratios and minimal documentation. • It looked like until the middle of 2008 that global growth would cushion the damage in the US. • The latest stage of the financial crisis started in September 2008, when several important U.S. financial institutions had financial problems with bad debts and a lack of liquidity and closed. Dr Tony Stokes - Economics at ACU National

  4. How did the financial crisis begin? • Lehman Brothers’ decision to file for bankruptcy, in particular, impacted global financial markets, worsened the severe contraction in market liquidity and heightening concerns about risks. • This led to a rise in borrowing costs for both financial and nonfinancial firms (see next slide) • This also spread to other nations where financial organisations had borrowed from these markets. • The probability of debt defaulting in the US has doubled in the last 12 months Dr Tony Stokes - Economics at ACU National

  5. Dr Tony Stokes - Economics at ACU National

  6. What are the effects of the global financial crisis? Dr Tony Stokes - Economics at ACU National

  7. What are the effects of the global financial crisis? • The global financial crisis has led to falling share markets, and instability in financial and foreign exchange markets • This uncertainty has discouraged investment and spending leading to falling economic growth rates and rising unemployment levels. • The IMF predicts that the level of World GDP will fall to 3.4% in 2008 and fall further to 0.5% in 2009. • Advanced Economies are expected to have -2% growth in 2009. Dr Tony Stokes - Economics at ACU National

  8. What are the effects of the global financial crisis? Dr Tony Stokes - Economics at ACU National

  9. What are the effects of the global financial crisis? Dr Tony Stokes - Economics at ACU National

  10. What are the effects of the global financial crisis? Dr Tony Stokes - Economics at ACU National

  11. What are the effects of the global financial crisis? Dr Tony Stokes - Economics at ACU National

  12. Dr Tony Stokes - Economics at ACU National

  13. What have been the governments’ response? • Central banks in the advanced economies have taken strong actions to cut policy rates and improve credit provisions. Dr Tony Stokes - Economics at ACU National

  14. What have been the governments’ response? • Many governments have announced fiscal packages to boost their economies. • Fiscal stimulus in G-20 countries in 2009 is projected to contribute 1.5 percent of GDP. Dr Tony Stokes - Economics at ACU National

  15. What have been the governments’ response? Dr Tony Stokes - Economics at ACU National

  16. When will it all end??? www.nicholsoncartoons.com.au Dr Tony Stokes - Economics at ACU National

  17. Recovery will be slow www.nicholsoncartoons.com.au Dr Tony Stokes - Economics at ACU National

  18. When will it all end??? • The IMF has predicted that global recovery will be slow. • In 2010 global growth is projected to be 3.0%. • Advanced economies are expected to grow by only 1.1%. • The emerging and developing economies are projected to grow by 5% in 2010 with China leading the way with 8%. • These levels are still likely to lead to increased unemployment rates at least until 2011. Dr Tony Stokes - Economics at ACU National