Growth after the financial crisis

April 25, 2013

It’s easy to blame the UK’s weak post-crisis economy, which just barely avoided a triple-dip recession, on its large financial sector.

This chart, however, shows that austerity measures play a bigger role than the size of the financial sector when it comes to depressing post-crisis growth. Post financial crisis GDP growth is on the x-axis, and financial sector assets as a percentage of GDP is on the y-axis:

The Swiss economy is more highly financialized than the UK’s, and has had strong post-crisis growth. Meanwhile, Spain, with a much smaller financial sector, implemented austerity measures along with the UK and has also seen its economy shrink considerably.

Growth can survive in a heavily financialized economy, but it can’t withstand austerity. The other clear takeaway here is that Australia is fortunate to find itself full of natural resources that China wants to buy.

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