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The early 1990s recession describes the period of economic downturn affecting much of the Western world in the early 1990s.

Background

Primary factors believed to have led to the recession include the following: restrictive monetary policy enacted by central banks, primarily in response to inflation concerns, the loss of consumer and business confidence as a result of the 1990 oil price shock,^[1] the end of the Cold War and the subsequent decrease in defense spending,^[2] the savings and loan crisis and a slump in office construction resulting from overbuilding during the 1980s.^[3] The US economy returned to 1980s level growth by 1993^[4] and global GDP growth by 1994.^[5]

Political ramifications

Canada and the United States

The Progressive Conservative government of Brian Mulroney in Canada and the successful presidential election campaign of George H. W. Bush in the United States may have been aided by the brief recovery of 1988. However, neither leader could hold on to power through the last part of the recession, being challenged by political opponents running on pledges to restore the economy to health. Bush initially enjoyed great popularity after the successful Persian Gulf War, but this soon wore off as the recession worsened; his 1992 re-election bid was particularly hampered by his 1990 decision to renege on his "Read my lips: no new taxes" pledge made during his first campaign in 1988. Meanwhile, Mulroney became deeply unpopular in Canada after two failed constitutional reform attempts (the Meech Lake Accord and Charlottetown Accord) and the 1991 introduction of the Goods and Services Tax (GST). He resigned as prime minister and party leader in 1993, and the Progressive Conservatives collapsed in the election held later that year, winning only two seats.

Australia

In Australia, Paul Keating (then Treasurer of Australia, and future Prime Minister) referred to it as "the recession that Australia had to have".^[6] This quote became a cornerstone of the opposition Liberal Party's campaign during the 1993 election, designed to underscore alleged mismanagement of the national economy by the incumbent Labor Party. Unlike the opposition parties in North America, however, the Liberal Party failed to enter government.

New Zealand

In neighbouring New Zealand, the recession came after the re-election of the reformist Lange Labour government. The impact of economic reforms (known as Rogernomics) in the recession led to deep policy divisions between the Prime Minister, David Lange, and the Minister of Finance, Roger Douglas. In response to the recession, Douglas wanted to increase the pace of reform, whereas Lange sought to prevent further reform. Douglas resigned from Cabinet in 1988, but was re-appointed to Cabinet in 1989, prompting Lange to resign. Labour lost the 1990 general elections by a landslide to the National Party, who continued with Douglas' reforms.

Finland

Finland underwent severe economic depression in 1990–93. Badly managed financial deregulation of the 1980s, in particular removal of bank borrowing controls and liberation of foreign borrowing, combined with strong currency and a fixed exchange rate policy led to a foreign debt financed boom. Bank borrowing increased at its peak over 100% a year and asset prices skyrocketed. The collapse of the Soviet Union in 1991 led to a 70% drop in trade with Russia and eventually Finland was forced to devaluate, which increased the private sector's foreign currency denominated debt burden. At the same time authorities tightened bank supervision and prudential regulation, lending dropped by 25% and asset prices halved. Combined with raising savings rate and worldwide economic troubles, this led to a sharp drop of aggregate demand and a wave of bankruptcies. Credit losses mounted and a banking crisis inevitability followed. The number of companies went down by 15%, real GDP contracted about 14% and unemployment rose from 3% to nearly 20% in four years.^[7]

Recovery has been based on exports, after currency devaluation of 40% and reviving world economy share of exports as percentage of GDP has risen from 20% to 45%,^[8] and Finland has been running consistent current account surpluses. Despite this impressive performance and strong growth mass unemployment has remained a problem.^[9]

United Kingdom

Despite several major economies showing quarterly detraction during 1989, the British economy continued to grow until the third quarter of 1990. Economic growth was not re-established until early 1993, with the end of the recession being officially declared on 26 April that year, but the Conservative government which had been in power continuously since 1979 managed to achieve re-election in April 1992 after the replacement of long-serving Margaret Thatcher with John Major as prime minister in November 1990 helped fend off a strong challenge from Neil Kinnock and Labour.

After the end of the recession, the British economy enjoyed a record run of unbroken economic growth lasting more than 15 years, until the economy lurched back into recession during 2008. The latter economic downturn was even worse than that of the early 1990s.^{[10][not in citation given]}

Influence on culture

In the United States during the recession more people chose to shop at discount stores. This caused Kmart and Walmart (which became the country's largest retailer in 1989) to outsell the traditional stalwart Sears.^[11]

Civil unrest

In the United Kingdom, there was a significant wave of rioting at the height of the recession in 1991, with unemployment and social discontent being seen as major factors. Areas affected included Handsworth in Birmingham,^[12]Blackbird Leys in Oxford, Kates Hill in Dudley, Meadow Well on Tyneside, Ely in Cardiff and Hartcliffe in Bristol. These were isolated communities devastated by poverty and unemployment, separated from urban centres.^[13]

See also

• Early 1980s recession


• Savings and loan crisis


• Credit crunch


• Gulf War


• List of recessions in the United States


• Lost Decade (Japan)

References