A Look Back to 2008

The 2008 – 09 crisis shocked stock markets, but its impact on debt markets was unprecedented. The 55% plunge in world equity markets was extremely painful, but within historical experience. By contrast, the catastrophe in credit markets—beginning in U.S. subprime mortgages, sending high-yield credit spreads above 2,000 basis points, and culminating in a European sovereign defaulting on an IMF payment—was an unparalleled and scarring experience

Policymakers’ responses to the crisis were equally unprecedented. Major central banks adopted vast quantitative easing programs and, in some cases, negative interest rates. Regulatory authorities overhauled swaths of banking and market regulation. Government balance sheets groaned under the weight of trillions of dollars of debt taken on from the imperiled private sector. Some, such as the U.S. and China, added substantial fiscal stimulus. Others implemented austerity measures, which in the case of the euro zone revealed structural weaknesses that remain unaddressed.

U.S. GDP contracted by more than 4% in the 12 months to the second quarter of 2009. Even the global economy shrank by 2% that year. Over the next five years unemployment peaked at 10% in the U.S. and 11% in the European Union. Youth unemployment in the EU hit 24%.

This unleashed significant social tensions. As the emerging economies opened to trade through the 1980s, '90s and 2000s and became the workshop for the world, cheap goods and cheap credit disguised the fact that the developed world had exported many of its manufacturing jobs. Inequality within countries grew even as global inequality diminished. The financial crisis revealed how unsustainable it was to use consumer credit to paper over the widening cracks.

As if all of this were not enough, the financial crisis and its aftermath coincided with an epochal change in the technological environment, from the arrival of smartphones and social media, to the spread of automation, artificial intelligence and “big data." This unleashed a wave of disruption as nearly every business model in every industry, from retail to media, from transport to finance itself, came under tremendous pressure to reinvent itself or die.

A Look Forward

We imagined ourselves 10 years from now. What are the forces that would still be driving the investment world, and what would have been dismissed as mere noise? We agreed that four big trends will still be shaping the economic and financial landscape.