No real effects of the financial crisis so far!

You have probably during the last 18 month been bombarded through media with information about the current financial crisis which more and more has become a broader economic crisis. Every day, newspapers, television, magazines and other media are full of information about the crisis. But have you personally felt any big effects from the crisis? Most people, at least in Europe, answers NO to this question and I will below explain why this is the case.

If you ask people about the real effects they have seen from the crisis so far, they most probably mention any of these:

• Their employers are more wary about spending money, i.e. companies are trying to reduce their costs.
• They have heard about that large companies have given notice to a lot of people the last couple of month. Note that this does not mean that people have lost their jobs yet, only that they probably will do that in the near future. If you go back about 6 month, nearly no company had started to make people redundant which means that the trend is fairly new despite that the crisis has been ongoing for over 18 month.

During the same period, i.e. over the last 18 month, most people have got higher wages combined with that the overall inflation has decreased. This means that people’s disposable income has increased substantially, i.e. people can buy more for their money now than they could just a short time ago. These circumstances with higher disposable income combined with low unemployment rates have made most people feel comfortable despite the ongoing economic crisis which probably is the worst since the great depression around 1930.

As mentioned, the crisis so far has not had any big implication for most people but this will change during the next couple of months! We will from now on, very rapidly go over to a new phase in the crisis where:

• More and more people actually will loose their jobs making the overall unemployment rate increase.
• Disposable income will be flat or go down for many people. I.e. even for the people that keep their job, the economical environment will be tougher with slow salary increases or even salary reductions.
• People will be careful spending their money which in turn will lead to that consumption will be slow or fall even further.

This could lead to that companies once again need to reduce their costs with the result that even more people are laid off which in turn means that a negative spiral has started. But for sure the future will be choppy and we will have periods of recovery as well as new downturns. My main point is that this new phase unfortunately will be much more tangible and it is now the crisis actually starts where people will feel the pain!

For more information about unemployment rates for EU27 and US, press at the corresponding link.