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How the world has changed since the financial crash

3:07 p.m./9 August 2017
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Exactly 10 years ago the world suffered the worst financial crash since the Great Depression of the 1930s.

A decade later, and the effects of the global financial crisis are still being felt. Here are a few ways the world has changed since the credit crunch.

Equity markets

Stock markets have recovered from the heavy losses suffered during the crisis, with US markets in particular setting a series of fresh record highs in recent months.

Mark Taylor, chief executive of Selftrade from Equiniti, said many investors have benefited from the recovery of stock markets since the low point, and subsequent sell-offs that made stocks appear very cheap.

“The stock markets have recovered, albeit many stocks that have risen are not the stocks that fell in the first place.

"The investors who bought index-tracking funds have been the beneficiaries,” he said.

“So if we believe that stock markets broadly operate in cycles of every 10 to 20 years (think the crash of 1987, the financial crisis starting in 2007) can we expect another stock market fall? While the probability of a correction is somewhat likely, it is far from certain.

“Unless you are an investor that has indefinite staying power and an ability to time markets, our view remains to invest regularly, to smooth out the peaks and troughs and leave timing of markets to those that have crystal balls.

"The world is now a very different place post 2008 and new companies and growth opportunities have arisen."

Quantitative easing

Central bank money printing and record low interest rates have supported flagging economies in the decade since the crisis.

The effects of this unprecedented monetary stimulus will be long-lasting, said Philip Smeaton, chief investment officer at Sanlam Private Wealth.

“By artificially flooding money back into the financial system, central banks kept interest rates low, and the global economy above water,” he said.

“Ten years on, and we’re finally seeing signs that the central banks are positioning themselves to move away from their loose monetary policy, giving way to a more normal environment of higher inflation and higher interest rates.”

The US Federal Reserve is starting to set the road map back to normality, and other central banks are watching it with interest, said Mr Smeaton.

Meanwhile, monetary stimulus in Europe has had the desired effect of encouraging global investment and holding the Eurozone together.

“Today, there is renewed economic confidence in Europe, and the European Central Bank has tentatively nodded towards a less accommodating monetary stance.

"We’re expecting it to end, or taper, its quantitative easing when the current programme concludes towards the end of the year.

"An easing of monetary stimulus is a vote of confidence for Europe, and should not be too disruptive - initially at least.”

The UK is in a trickier position, Mr Smeaton acknowledged.

“With the Purchasing Managers’ Index and consumer data at disappointing levels, the case for higher rates appears low.

"Indeed, we believe there will be weak economic growth in the UK for the foreseeable future and this was reflected in the anaemic 0.3 per cent growth rate for the three months to June this year.

"Brexit fears are stalling investment, government expenditure is already higher than tax receipts, and wages after inflation have been falling, leaving the consumer with reduced spending power.

"All of this means that the Bank of England will struggle to make any significant moves away from monetary stimulus, although we must remember that its mandate is to maintain inflation at 2 per cent rather than achieve economic growth.”

Trust in banks shattered

One of the most iconic moments of the credit crisis was the run on Northern Rock, which saw savers queuing around the block to withdraw their money in unprecedented scenes.

Trust in mainstream banks has yet to recover, and that has opened the door for challenger banks to make their mark, Sophie Guibaud, vice president of European expansion at Fidor Bank, argued.

“The credit crunch shattered consumers’ unflinching trust in traditional banks forever. One positive to emerge from the financial crisis has been the rise in prominence of challenger banks and innovative financial service providers.

“Consumers now have a much more level playing field when it comes to banking, but most importantly too, they know it.

"This means that financial organisations can’t take their customers for granted again. In order to be successful in today’s world of banking, they instead have to have a customer-centric, transparent and fair service on offer.”

Household finances still crunched

Research from GoCompare paints a bleak picture for household finances in the 10 years since the crisis, highlighting a lack of job security, increasing wealth disparity and a reliance on credit to make ends meet.

The comparison site found that 46 per cent of people in the UK feel worse off than they did in 2007, with one in four concerned that they would be in serious financial trouble should another economic downturn hit.

The research found that, while the last decade has seen 55 per cent of people face increased living costs, a quarter of people have felt the squeeze with their income either staying the same or declining.

It also uncovered a lack of job security, with just 16 per cent of people feeling secure in their employment.

Matt Sanders, commercial director for emerging products at GoCompare, said: “August 2017 marks a decade since the start of the credit crunch – the worst financial crisis since the Great Depression.

"From our study, it is clear that many people are still feeling the effects of the worldwide economic meltdown and are ill prepared for another crash.

“The problem of rising costs for goods and services and stagnant wages has been widely reported in the media, with the government committed to helping people it has identified as ‘just managing’.”

Martin Bamford, managing director at Informed Choice, said ultimately the financial crisis changed everything and yet at the same time it changed nothing.

He said: "People have very short memories. In the short term, it made a lot of people nervous about risk and volatility, and some of that fear has lingered, but people have forgotten what it was actually like at the time, with the queues outside banks and so on.

"Ten years on, the environment is artificial, the whole economy is propped up by quantitative easing and low interest rates.

"The damage hasn’t been repaired – although bank balance sheets have been somewhat repaired, the economy is still in an awful position. We are all still waiting for the next market crash to come along.”

Hannah Smith is a freelance journalist

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