Since the beginning of April, I have been frequently comparing the developments in the aftermaths of the 2011 crisis and the global crisis. Today I want to summarize the results. The results must also be evaluated taking into consideration the circumstances before the crises (initial conditions) with which I will deal tomorrow.
First let me put the similarities between the two crises with respect to the dimension and the intensity of the movements. We can trace two similarities in this context: first is observed in the gross domestic product (GDP) movements. The period from the peak to the trough was four quarters in the case of the both. The pace of recovery after the trough point is also similar. The only difference with respect to the GDP movements is that the trough was deeper in the global crisis than the 2001 crisis. The second similarity is about the increase in the unemployment rate which increased substantially during both of the crisis. Nevertheless, if we look at the level of unemployment rather than the pace of increase in unemployment we see that the level is much higher now compared to the period during and after the 2001 crisis.
The indicators that move in the same direction with different intensities: first, the net amount of credits banking and corporate sector received from abroad rapidly turned negative in both of the crises and the said sectors become net external debt payers. After that point it took quite a long time for the sectors to become net external fund users. On the other hand the movement was much more intensive in the global crisis. The amount transferred abroad on the eve of the trough and after the trough was much larger.
Second, the volume of credits banks extended to the real sector decreased rapidly in the case of both crises. However, the drop in the volume of credits net of inflation is incomparably high during the 2001 crisis. What is more, the pre-crisis level could not been achieved even three years after the 2001 crisis. However currently the real credit volume already exceeded the peak level before the global crisis.
Third, the movements are similar in both of the crisis concerning the confidence in the economy. First seen is a sharp contraction and followed by recovery. However the loss of confidence is much stronger and recovery is much slower in the global crisis.
Fourth, real value of the lira against foreign exchange (real exchange rate) moves in the same direction in both crises: a rapid depreciation and then the reversal. Doubtlessly, the depreciation was much rapid in the 2001 crisis and in this respect the appreciation was higher in the reversal process.
Finally, let us take a look at the variables that moved in opposite directions: real value of exports and inflation. In case of the 2001 crisis, real value of exports of goods and services never fell below the pre-crisis level. In spite of small fluctuations, the value of exports always moved upwards. However, in the global crisis real value of exports decreased substantially. Export performance started to recover five quarters after the pre-crisis peak.
Second, inflation moved in opposite directions: in the global crisis inflation decreased rapidly as the crisis intensified. As the trough was overcame and the economy started to recover (as of the last months of 2009) inflation tended upwards. However, in the 2001 crisis a movement in the opposite direction was observed and inflation rate increased as the crisis deepened and vice versa.
In short, the two crises were similar with respect to their outcomes: the economy contracted with a similar pace while unemployment increased at similar rates. Nevertheless, the underlying reasons were substantially different. I will assess these in tomorrow's commentary.
This commentary was published in Radikal daily on 30.05.2010
