2008 Financial Crisis And 2021 – How Does This Recovery Compare?
The financial crisis of 2008 might have been caused by a fundamentally different set of circumstances than today’s economic situation, but the result is the same.
The UK economy fell into a cavernous hole back in 2008 as a result of the financial turmoil that proved to be a catalyst for a sharp downturn in GDP. The damage was so deep that it took years for GDP to finally return to pre-crisis levels.
This time around, the global pandemic caused the UK economy to shrink by nearly 25% back in March 2020.
More recently, a drop of 1.5% in economic output in the first three months of 2021 is the size of contraction that normally signals that we are in a recession, but rather than general gloom and doom about these figures, even the Bank of England is claiming to be mildly encouraged by the numbers.
What The Numbers Are Saying
Although the UK economy shrunk by 1.5% overall in the first quarter of 2021, if you break down those numbers into individual months, a more encouraging pattern emerges.
The contraction was 2.5% in January 2021, but February saw the economy expand by 0.7% in February and March witnessed a healthy 2.1% rebound. These numbers would suggest that the economy is doing its best to recover quickly and beat expectations.
The bottom line is that economic output is still 5.9% below pre-pandemic levels and, in general terms, the economy is still close to 8% smaller than the level it might have achieved with the pandemic to contend with.
Compared To 2008
June 2008 was the line in the sand when sixteen years of economic growth went into a downward spiral and we witnessed five successive quarters of falling GDP growth.
When you consider the fact that it usually only requires two successive quarters to call it a recession, you get a true sense of the scale of the impact. It also took seven years for the rate of unemployment to return to the same level before the crash.
The current recovery is still playing out, so you can’t make conclusive comparisons, however, the ONS has stated that the UK economy grew by 2.1% in March, which compares favourably to the 1.3% predicted growth.
Markets and individual stocks are always going to be sensitive to economic news and the threat of inflation impacted markets recently.
Stronger economic growth data than expected is helping to counteract these fears and upbeat trading reports from companies impacted by the lockdown means that short-term trading opportunities are being created constantly.
It seems that GDP growth and an economic recovery will bounce back at a much faster rate than they did in 2008. Traders are unlikely to be lacking in chances to find an edge if they buy into the optimistic news that fills screens on an almost daily basis.