Fallout for the industrial economies

For industrial economies, a powerful interaction between the financial sector and the real economy began to take hold in the last quarter of 2008. A dramatic loss of confidence was combined with the unwinding of imbalances that had built up on household, industrial and financial system balance sheets in the industrial economies since the beginning of the decade. The outcome has been a severe downturn in both real activity and inflation. But since leverage has only begun to adjust - credit in both the financial and non-financial sectors of the economies that have had credit booms remains well above the level of only a few years ago - it is reasonable to anticipate both a protracted downturn and a slow recovery.