Financial markets were volatile and illiquid, and the viability of some of the world’s leading financial institutions had been called into question. With asset prices falling and the flow of credit to the nonfinancial sector constricted, most of the world’s economies had entered what would prove to be a sharp and protracted economic downturn.
In Germany, the GDP growth rate in the 1990s was almost 1½ percentage points below the corresponding US figure. Currently, the difference in the trend growth is likely to be slightly more than one percentage point.3 When considering the individual components of demand, the different momentum of capital spending is particularly striking.