Peter Decaprio: How big was the 2008 recession from an overall global perspective?

The third and fourth quarter of 2008 was some of the most turbulent in living memory, on that, we can all agree says Peter Decaprio. As the financial crisis took hold it had an almost immediate effect on global stock markets, which started to plunge on a scale not seen since the days of October 1987. The collapse in share prices was such that on October 9th, New York’s Dow Jones closed at its lowest level since 1997, while London’s FTSE 100 saw its worst-ever day with a loss of more than 12%, erasing all gains made so far that year.

That bad day for UK investors was topped off by similar losses in Tokyo (-17%) and across Europe (-12%). In total, global share values lost $4.4 trillion within four days, and this was clearly something more than a ‘correction’; indeed, the term ‘bear market’ – with all its negative connotations – came into widespread use for the first time since the early 1970s.

Yet there were also other ways in which the global nature of the financial crisis was evident.

Throughout 2008 we saw many major economies around the world fall into recession (defined as two consecutive quarters of falling GDP):

  • Japan (Q1 to Q3), France (Q2), Germany (Q2), Italy (from Q2), Russia (Q3) and both Korea and China (both Q3). The US economy suffered an initial wobble at the end of 2007 but would see a further decline between Q3 and Q4 of 2008 – its first since the early 1990s – while the UK had already fallen into recession in the opening quarter. Poland and Australia would both suffer significant declines in GDP during 2009, and South Africa’s economy would not return to growth until late-2010. The Eurozone as a whole suffered its worst quarterly drop in GDP (-5%) for eight years, but it was actually Brazil which saw the largest downturn outside of an actual recession: with GDP falling by more than 7% between July and September 2008 says Peter Decaprio. Meanwhile, Iceland’s banking sector imploded as spectacularly as any; leading to a 50% devaluation of the national currency (the krona) followed by a dramatic fall in GDP (-6.7%) – a decline so steep that Iceland was actually the first Western country to enter a recession during the global financial crisis of 2008-09.
  • As a result, it can be seen here how ‘global’ the effects of the financial crisis were, both in terms of their extent (with few major economies avoiding significant drops in GDP) and also their depth; with many economies suffering at least one quarterly fall in output measuring more than 3%. Yet these examples mostly relate to developed or emerging OECD countries; what about developing nations? That question is answered by looking at GDP growth rates rather than levels, as shown below:
  • The period between 2007 and 2009 saw an economic slowdown which affected many parts of the developing world. However, the degree to which this occurred was highly variable. With some countries experiencing relatively small changes (eg India: +4.0% to +5.8%). While others saw much greater change (eg Vietnam: +7.1% to -2.1%). What is perhaps more striking about the table above is that it highlights. How many of the larger economies in the developing world suffered very little from a slowdown at all. Even continued their strong growth into late-2008 and early-2009 – as they were not significantly reliant on foreign capital. As a means of funding their development projects; whether for lack of funding options available locally or because those options weren’t sufficiently attractive. Due to interest rates makes little difference. Peter Decaprio gives a good example of this is China. Where GDP growth was positive throughout 2008 and actually accelerated in 2009 (+10.0%). As the country continued to invest large amounts of capital into infrastructure projects – via state-run banks. Which were seen as a means of maintaining economic stability until commodity prices recovered from their troughs later that year.
  • In contrast, developing economies heavily reliant on foreign investment. Such as those in East Asia – found them particularly badly hit. With many experiencing sharp slowdowns in late-2008 and early-2009. However, these proved to be short-lived. Especially for those countries which maintained low interest rates (i.e. the Philippines). Since the flow of capital soon began returning as investors sought opportunities to recoup their losses elsewhere in the world. The most notable exception to this was, of course, Thailand which suffered a severe contraction in GDP (-8.9%). Between Q1 and Q3 2009, although the country’s economy would soon stabilize with growth returning in 2010 (+4.7%).


The financial crisis is seen as the worst global downturn since World War II. Its origins traced to excessive risk-taking in US banking and persistent unbalanced growth. Between developed nations and large emerging markets says Peter Decaprio. Among developed countries, it is estimated that real GDP contracted by approximately 2%. While emerging economies saw more moderate growth slowdown (around -1%) which was also more volatile. With many experiencing significant setbacks in late-2008 and early-2009.

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