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The global financial crisis is likely to leave long-lasting scars on the world economy, the International Monetary Fund said Tuesday, citing a new study. However, governments could act to stimulate a quicker revival and reverse output losses, the lender said in a report.
The study found that banking crises typically have a long-lasting impact on the level of output, with lower employment, investment and productivity, all contributing to sustained losses. The report noted that there was a strong association between the initial economic conditions and the size of the ultimate output loss. A short-term macro economic stimulus along with a sustained structural reform might help reduce the ultimate output loss.
The IMF study pointed out that the medium-run output loss was not inevitable. Some countries succeed in avoiding it, the lender said in a statement. "Although post-crisis output dynamics are hard to predict, the evidence suggests that economies that apply macroeconomic stimulus in the short run after the crisis tend to have smaller output losses over the medium run."
Structural reform efforts were also associated with better medium term outcomes, although the IMF warned that there was no "one size fits all" policy that could be implemented after the crisis.
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