Global Effects Of Debt Crisis

The global effects of debt crisis could deepen if the crisis continues, according to some economists and financial experts. The economic recession could turn worse. There are fears of a global economic collapse although there are many cautiously optimistic forecasters now. Read on to know the major global effects of American debt crisis in this article.


All over the world, the current debt crisis is likely to give way to the biggest banking shakeout ever. 2008 saw a clear global recession and debt crisis, which was unlikely to recover for at least two years. Economists soon announced that the end of the crisis had begun. The world started to take the essential actions needed to fix the debt crisis. There were capital injection by governments and the interest rates were cut down to help borrowers. Let us take a look into the global impact of debt crisis.

With the world's central banks lowering down interest rates, the United Kingdom govt.

had started systemic injection, emphasizing the United States too to apply systemic injection. Although, the economists feel that these are only temporary solutions with the worst still to come. Their expected durations would last for two quarters in Eurozone's, while in the US it will last for three quarters. United Kingdom's duration for recession is supposed to last four quarters. It is important to note that the economic crisis in Iceland involving all three of the country's major banks, has suffered the largest banking collapse by any country in economic history.

As per the Brookings Institution reports, the US economy has been using and borrowing too much for years. The rest of the world depends on the U.S. consumer as a source of global demand. With a recession and debt crisis in U.S., there has been a dramatic decline in growth elsewhere. Germany experienced 14.4% rate of decline and Japan witnessed 15.2%. The decline rate was 7.4% in the UK, .8% in the Euro area, 21.5% for Mexico and 18% in Latvia,

The global effects of debt crisis could be seen in some developing countries that witnessed significant slowdowns after seeing strong economic growth. For example, Cambodia showed a fall from more than 10% in 2007 to zero in 2009. Kenya could achieve only 3-4% growth in 2009, while it was 7% in 2007. Drops in trade, commodity prices, investment and remittances sent from migrant workers have felt the global impact of debt crisis.

By 2009, the Arab world lost $3 trillion due to the global effects of American debt crisis.

Unemployment in the Arab world is said to be record high. Due to a fall in demand for oil, United Nations reported a fall in foreign investment in Middle-Eastern economies.

There is a tough year ahead for Arab states according to the World Bank. Arab banks have had losses of nearly $4 billion since the onset of the global effects of debt crisis.

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