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Financial crisis Part 4. Financial crisis. Events Causes Government actions Future. EIU Future outlook. 1. Central Forecast Scenario (60%).

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financial crisis
Financial crisis

Events

Causes

Government actions

Future

eiu future outlook 1 central forecast scenario 60
EIU Future outlook. 1. Central Forecast Scenario (60%)

Government stimulus stabilises the global financial system and restores economic growth in leading developed markets during 2010, albeit at lower levels than in recent years.

wall street journal forecasts april 2009
Wall Street Journal forecasts (April 2009)

GDP:

Q1 2009 -5.0

Q2 2009 -1.8

Q3 2009 0.4

Q4 2009 1.6

2009 (4Q/4Q) -1.4

  • CPI:
    • June 2009 - 1.3%
    • Dec 2009 1.1%
  • Unemployment
    • June 2009 9.0%
    • Dec 2009 9.5%
  • Change in home prices
    • Q4 2009 / Q4 2008: -6.4%
    • Q4 2009 / Q4 2008: -0.4%
eiu future outlook 2 main risk scenario 30
EIU Future outlook. 2. Main Risk Scenario (30%)

Stimulus fails, leading to continued asset price deflation and sustained contraction in the leading economies— a depression persisting for some years. The stubborn decline in global economic activity is punctuated by occasional rallies that are taken as signs of recovery, but these quickly fade as the underlying downward trend reasserts itself. The prominent role of governments in propping up banks and reviving domestic demand leads to strong political pressure for protectionism, effectively putting the process of globalisation into reverse.

eiu future outlook 2 main risk scenario 307
EIU Future outlook. 2. Main Risk Scenario (30%)

Economic downturn spiral: banks cannot lend > the real economy contracts for lack of financing > the real economy cannot repay their debts > banks collapse

The global economy endures a multi-year depression characterised by bankruptcies and job losses. In a vicious cycle of debt deflation, the burden of debt rises in real terms as collateral declines in value and incomes contract. As bad debts pile up, banks’ balance sheets are further weakened, resulting in forced asset sales. These drive down prices further. Like banks and financial institutions, households and companies are engaged in a process of deleveraging in which they dispose of assets in order to pay down debt.

Japanese style outlook (recession and deflation)

eiu future outlook 3 alternative risk scenario 10
EIU Future outlook. 3. Alternative Risk Scenario (10%)

Failing confidence in the dollar leads to its collapse, and the search for alternative safe-havens proves fruitless. Economic upheaval sharply raises the risk of social unrest and violent protest.

US federal government debt rises from US$9trn (66% of GDP) in fiscal year 2006/07 (October-September) to US$14trn (104% of GDP) in fiscal 2009/10

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Sources

  • Economist Intelligence Unit
  • J. P. Morgan
  • Goldman Sachs
  • Wall Street Journal
  • McKinsey & Co.
  • Financial Times
  • New York Times
  • Washington Post
  • Wikipedia
  • http://biz.yahoo.com/c/ec/200916.html