Global crisis

Financial crises have severe economic costs. This column shows that they also entail major political costs. It argues that the global financial crisis, and associated Great Recession, represents a watershed for populism in Europe, changing people’s views and the rhetoric of all parties. The crisis brought economic insecurity to  the middle classes, which had largely remained untouched by the globalisation and immigration shocks. Disillusionment with the status quo prompted parties to enter the political arena on populist platforms.

Previous studies report the propagation of shocks via supply chains downstream, but little is known about the propagation from customers to suppliers driven by demand shocks. This column uses Japanese firm-level input-output data to fill this gap. The authors find that negative demand shocks only propagated from large exporters to larger suppliers during the global financial crisis, but were transmitted from small customers even to their small suppliers during the COVID-19 pandemic. Identifying the propagation route helps in the design of targeted policies.