For three decades, the globalization of finance appeared to be an unstoppable trend: as the world economy became more tightly integrated, new technology and access to new markets propelled cross-border capital flows to unprecedented heights. But the financial crisis brought that era of rapid growth to a halt.
Drawing on our proprietary database of financial assets in 183 countries, Financial globalization: Retreat or reset? continues the McKinsey Global Institute’s ongoing series of reports on global capital markets. More than four and a half years after the financial crisis began, we find that recovery has barely started, despite a rebound in some major equity indexes. Growth in financial assets has stalled, while cross-border capital flows remain more than 60 percent below their 2007 peak. Some of the shifts under way represent a healthy correction of the excesses of the bubble years—but continued retrenchment could damage long-term economic growth.
Among the report’s findings:
- Global financial assets—or the value of equity-market capitalization, corporate and government bonds, and loans—have grown by just 1.9 percent annually since the crisis, down from average annual growth of 7.9 percent from 1990 to 2007 (Exhibit 1). This slowdown is not confined to deleveraging advanced economies; surprisingly, it also extends to emerging markets.
h/t Jim D
