Tuesday, 28 October 2008

Recession to Last 2 to 3 Years? ... or More?

Robert Peston of the BBC blogs that a Bank of England report on the financial crisis tells how a similar banking credit crisis and contraction in Norway, Sweden and Japan lasted two to three years. Is that how long the recession will last? Or Perhaps even longer if there is a lag after lending and business investment and consumer spending start again? Incidentally, there are always lots of comments on his frequent posts and many of those comments add an interesting perspective. London is, or was(?) and major financial center so many insiders seem to want to get the dirt out and they comment away.

Global Financial Crisis: How Long? How Deep? over at Vox EU shows that crises such as the one currently underway have had the following effects on average:
  • credit crunch - average two and a half years with about 20% decline in real credit
  • housing bust - average four and a half years with 30% decline in real prices
  • stock market crash - average two and a half years with 50% real decline in equities
Worse news, recessions associated with the above are much more severe, with economic output declining up to 1% and lasting over four years. As the authors say, "The main take-away of the past episodes is that some tough times are ahead for the global economy before matters get better." Their short article is based on a just-released 80 page study by the International Monetary Fund Systemic Banking Crises: a New Database by Luc Laeven and Fabian Valencia.

GlobeAdvisor reports that the CPPIB is on the prowl to acquire real estate properties at bargain prices in the US and the UK and it apparently anticipates the bargains will be there for about two years, i.e. that's how long they believe the slump could last.

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