The financial crisis of 2008 had one of the most devastating impacts on the world economies. The American economy may have been the source of the crisis but the impacts affected almost every country in the world. There are several global implications that resulted from the crisis. This includes the developed economies in Europe and the developing economies in the rest of the world such as Latin America and Africa. The global impacts can be divided into two; the consequences of the crisis on developing nations and on developed nations.
The developing world suffered a great deal during the financial crisis. The crisis saw the depreciation of the dollar on the international market. The dollar is a universal currency used by most developing nations to purchase imports and to export their products. The reduction in value of the dollar meant that developing nations could not export most of their products. Importing nations around the world cut down on the amount of goods and services they purchased abroad because of the low value of the dollar. For example, developed nations reduced the importation of luxury products such as flowers. The prices for most goods on the world market such as coffee and tea deteriorated. This led to the slow growth of developing economies whose main experts are agricultural products.
The financial crisis also affected the financial systems in European nations such as Britain. Some of the banks in the US had subsidiaries in Europe. The crisis started in the US when banks and other financial institutions such as Lehman Brothers became bankrupt and the government could not bail them out. These banks had branches in Europe. This led to the decline of some financial institutions in Europe such as Lehman Brothers, which collapsed and AIG, which went into partner ownership with the government. Therefore, thee financial crisis destabilized the financial system in most European nations hence; the collapse of several financial institutions and the nationalization of others. Some of the nationalized institutions include; Freddie Mac, Fannie Mae, Fortis and Bradford & Bingley- all of which are in Britain.
The global financial crisis also caused massive unemployment across the world. The collapse of many financial institutions around the world led to the reduction in money supply in the affected economies. The reduction in exports and imports all over the world led to the closing of many business entities since there was a significant reduction in demand for goods and services. Many companies and business wanted to cut down on their expenses to survive the harsh economic conditions. Therefore, most companies cut down on their wage bills by laying off a huge section of their labor force. It is estimated that unemployment peaked during the crisis with some economies such as Britain recording 10 percent unemployment.
The stock markets all over the world were affected by the financial crisis. Many investors lost confidence in the markets as news about the probable collapse, take overs or nationalization companies spread. Therefore, many investors kept off the stock markets, especially shares of banking institutions were left untraded. The volatility of the stocks became very high. For instance, the Japanese Nikkei index could plunge to 11 percent and soar to 14 percent in a matter of days. Generally, the stock prices of many companies suffered as they lost value. The reduced demand due to investors’ reluctance to buy shares was the main cause.
During the 2008 financial crisis, the world witnessed high rates of inflation. Most currencies depreciated because most economies use the dollar in international trade. During the crisis, the dollar lost value significantly, prompting many economies to adjust their monetary policies. Inflation resulted from the dollar’s depreciation. This affected many economies as they struggled to balance the value of their currencies against the dollar in order to participate in international trade.
The inflation rates affected the price commodities in most developing and developed nations. Oil prices shot up significantly as OPEC nations tightened their policies in order to get value for their money on the oil they export. This made all other commodities to be expensive in most developing nations. With unemployment, high food and commodity prices, the poverty levels in developing nations increased.
The level of world business in terms of exports and imports reduced significantly during the financial crisis. The crisis affected many financial institutions hence; investors became reluctant to invest because of high risks in the market. The industrial production also reduced due to less demand for goods and services. This reduced the GDP of many countries around the world.
The financial crisis of 2008 was also the basis of the euro zone crisis. The impacts of the financial crisis in European nations such as Italy, Greece and Spain led to these nations accumulating a lot of debt. During the crisis, the governments of these nations had to bail out some of their major industrial and financial institutions. The governments could not fund these bail outs. They borrowed from other European nations and institutions. However, the accumulation of debt and fragile economies has led to the almost-collapse of these economies. For instance, Greece was the worst hit to the extent that the Eurozone nations had to intervene to save the economy from disintegration.
Therefore, the 2008 financial crisis had a devastating impact on the global economies. It affected developed and developing nations in equal measure. The crisis caused massive unemployment, currency depreciation, collapse of industrial and financial institutions, reduction in exports and imports. The crisis also cause inflation and caused instability in the stock exchange markets around the world. The crisis is also responsible for the Eurozone crisis that has led to economies like Greece, Spain and Italy seek economic help from Eurozone members.
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