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GEAB 129

The monthly bulletin of LEAP (European Laboratory of Political Anticipation) - 15 Nov 2018

Savings in eurozone at heart of risk of new global financial crisis

Ten years after the Lehman Brothers collapse, the fear of another major financial crisis hasn’t totally disappeared. In a recent forum, Nouriel Roubini, one of the economists who had anticipated the 2007-2008 crisis, announced for 2020 the possibility of a new financial crisis, plunging the global economy into recession. For him, all the ingredients of this scenario are being met: a new rise in interest rates (with very few or no leeway for the central banks once the crisis occurs), a high private and public debt and excessive stock market pricing.[1]

Growth still structurally weak and supported by bubbles 

This analysis shows the weakness of a global economy which has never really been able to recover after the financial crisis ten years ago. Certainly, growth in the United States has been steady since mid-2009, which makes this the second-longest period of expansion after 1991-2001.[2] As for the unemployment rate across the Atlantic, it is at its lowest since 1969.[3] But in both cases, these records are misleading. Despite the surge of the past nine years, US growth has long remained lower on average than during earlier periods. It has been 2.3% over the last nine years against 4.15% between 1991 and 2001.[4] Similarly, in terms of employment, the very low unemployment rate should not obscure a labour market participation rate that is two points lower than in 2006. In 2016 the number of hours worked in the United States was higher by 4.2% compared to 2007. Essentially, then, the decline in unemployment has come about as a result of shared working hours and hence insecurity. Consumption growth in the US has been fuelled by a continued drop in the savings rate and an increase in household debt, which, at the end of 2018, will reach a record high of $4 trillion, representing 26 % of gross disposable income.[5]

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