In this situation, investors are inclined to underestimate the deterioration of economic fundamentals and to over-borrow. The following readjustment, by contrast, may cause a credit crunch, a surge in private savings and therefore a collapse in consumption. In the course of the crisis, many of these effects along with a serious economic downturn could be observed in most industrialised countries.
Moreover, global trade declined dramatically when the financial crisis spread to the real economy, a development which also hit the previously fairly unaffected emerging market economies.