Great Depression, Global Recession Repeat: No Lessons Learnt?

On Thursday, news came in that there was a sudden share price crash for European investment banking giant Credit Suisse. This follows the collapse of the Silicon Valley Bank in the United States last week.

These two developments may be spread across an ocean, literally, but taken together, their occurrence bodes ill for the global economic outlook. Some may even be reminded of the 2008 global recession, which left world economies reeling.

Meanwhile, ‘experts’ have been making reassuring noises and saying that “this is not a repeat of 2008”. However, anyone who has dealt with the damage control mode employed by the powers-that-be in the face of crises knows that when they tell you to “stay calm”, that’s when you run.

If we look back at recent turn of events in the IT sector — once considered blessed with the Midas touch — like layoffs and cost-cutting, there emerges a pattern and what that indicates is not reassuring. It makes you want to cut your losses and pray hard that another recession does not impact your particular sector adversely.

But that seems pretty unlikely as of now.

While the outlook for the manufacturing, energy, housing and services sectors has long been negative, it was the good turn — even if much subdued — around the banking and IT sectors that had kept the momentum going in the world economy, which is now more closely and intricately inter-connected than ever before in history.

It does not help that global supply chains have been disrupted by the continuing Russian military offensive in Ukraine and oil prices have soared considerably.

While descriptions may vary, a recession is often defined as two consecutive quarters of negative gross domestic product growth. Since the world is so inter-connected now, the impact of a downturn in GDP growth in one country and/or sector is bound to have a cascading effect across other countries and sectors.

This is why what has happened with SVB and Credit Suisse is deeply worrying. As late as February end, there were noises about a global recession in the second half of 2023, which was expected to hit IT spending considerably.

“Global information technology spending in 2023 is expected to be considerably affected by a recession, which is expected in the second half of the year, the president of the International Data Corporation has said. IT spending by companies is set to grow by as much as 5.3 per cent on an annual basis to $3.3 trillion this year but could fall to about 3 per cent should a recession take hold…” said a report in The National News.

On January 10, the World Bank had warned that the global economy will come “perilously close” to a recession this year, led by weaker growth in all the world’s top economies – the United States, Europe and China.

AFP reported, “In an annual report, the World Bank, which lends money to poorer countries for development projects, said it had slashed its forecast for global growth this year by nearly half, to just 1.7 percent, from its previous projection of 3 percent. If that forecast proved accurate, it would be the third-weakest annual expansion in 30 years, behind only the deep recessions that resulted from the 2008 global financial crisis and the coronavirus pandemic in 2020.”

The economic scare of 2008, although 15 years in the past, still spooks high-profile investors and average citizens alike. Caused by the financial crisis of 2007-08 in the US, it rapidly spread to other countries and was the longest and deepest economic downturn in several nations, including the US, since the Great Depression of 1929.

Just like in 2008 — with the Lehman Brothers filing for bankruptcy — and at present — SVB and Credit Suisse banks — the Great Depression was the result of the failure of banks.

It is an oft-repeated adage that those who don’t learn from history are doomed to repeat it.

Given the current state of the world economy and the tendency of policymakers, investment bankers, oil majors and governments to put greed and profit first and treat sustainable economic growth as an afterthought, it is highly-probable that we may be pushed, again, into economic doldrums.

Only, it would be obscenely unfortunate and reckless since we had examples to learn from and time to fix matters before they become irreparable. It seems the financial shock of the Great Depression of 1929 and the economic ruin caused by the 2008 recession may just be on the verge of being repeated across the globe in the coming weeks and months.