Development and Finance from issue 2010/3

Péter Halmai

Financial Crisis and Economic Growth

- Abstract -

JEL G-01


The severe financial and economic crises of past years exerted severe impacts on output and on employment. This financial and economic meltdown is also impacting considerably on potential output. In the short term the crisis triggered a sharp decline in the level of potential output, especially in that of productive capital (by means of the rising depreciation of capital), and weighed down on labour supply as well as structural unemployment – albeit perhaps only temporarily. The crucial issue is the impact of the crisis on long-term growth in potential output. If potential growth strengthens again following the crisis then the loss caused by the fall in output will be made up again after a certain time. The economy could move on to a higher level of sustainable growth following the inevitable effects of the structural changes triggered by the crisis. (The development of Sweden and Finland after the crisis in the early 1990s represents a good example of such processes.)

Péter Halmai, DSc, professor of economics (Szent István University)

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