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Lessons from the Brink: Comparing Three Defining Economic Crises of 2008, 2020 and 2025

Comparing Three Defining Economic Crises of 2008, 2020 and 2025
















Analysis and Insights

Nature and Triggers: Distinct Origins

  • 2008 Global Financial Crisis (GFC): A systemic financial failure rooted in over-leveraged institutions and subprime mortgage defaults, leading to a credit freeze. The trigger was the collapse of Lehman Brothers (September 2008), exposing the fragility of the financial system.
  • 2020 COVID-19 Crisis: A health-driven economic shock caused by a global pandemic, resulting in widespread business closures and supply chain disruptions. The trigger was the discovery of significant COVID-19 cases in Italy (February 2020), signaling its global reach and severity.
  • 2025 Tariff Crisis (In Process): A policy-induced trade disruption stemming from newly imposed tariffs, leading to global trade barriers and economic uncertainty. The trigger was the announcement of Trump Tariffs (April 2025), initiating a wave of trade policy changes and retaliatory actions.

Market Reactions: Common Threads and Divergences

  • Equity Markets:
    • The 2020 crisis witnessed the most abrupt equity downturn, with the S&P 500 plummeting by 31% in just over a month.
    • The 2008 GFC saw a significant decline as well, with the S&P 500 dropping 28% over several months.
    • The initial reaction to the 2025 Tariff Crisis has been more moderate, with the S&P 500 falling by 9.08% in the immediate aftermath, potentially due to the gradual implementation of tariffs.
    • In all crises, the Equity Risk Premium (ERP) rose, indicating increased investor caution.
  • Bond Markets:
    • In all three crises, Treasury rates declined, reflecting a classic flight to safety as investors sought less risky assets.
    • However, the initial decline in the 2025 crisis has been less pronounced compared to 2008 and 2020, possibly influenced by emerging inflation concerns linked to the tariffs.
  • Gold:
    • Gold consistently acted as a safe-haven asset during periods of crisis.
    • Prices rose during the 2008 GFC and the 2020 COVID-19 crisis.
    • While specific data for the 2025 crisis is not yet fully available, historical precedent suggests gold is likely to appreciate as trade tensions and economic uncertainty persist.

Economic Impact: Varying Degrees and Durations

  • Equity Earnings:
    • The 2008 GFC resulted in the most significant earnings drop for the S&P 500 (40%), with a slow recovery.
    • The 2020 crisis also saw a substantial earnings decline initially, but recovery was notably faster due to swift stimulus measures.
    • The 2025 Tariff Crisis is expected to pressure earnings due to increased costs from tariffs, although the exact magnitude remains uncertain.
  • Bond Yields:
    • Low Treasury yields persisted for an extended period following both the 2008 and 2020 crises due to aggressive central bank interventions.
    • The future trajectory of bond yields in the 2025 crisis is less clear, depending on the interplay between inflation fears (driven by tariffs) and potential recession risks.
  • Gold Prices:
    • Gold prices increased in all crises, with the most sustained rise occurring after the 2008 GFC due to prolonged economic uncertainty.
  • Broader Economy:
    • The 2008 GFC triggered a deep and protracted recession with lasting impacts on trust in financial institutions.
    • The 2020 crisis led to a sharp but relatively short-lived recession, followed by a faster recovery aided by significant stimulus, and also induced structural shifts like the rise of remote work.
    • The 2025 Tariff Crisis is currently unfolding, with the potential for a recession, reduced global growth due to trade barriers, and unpredictable inflationary consequences.

Resolution: Different Approaches

  • The resolutions to the 2008 and 2020 crises heavily relied on substantial government and central bank interventions, including bailouts, massive fiscal stimulus packages, and aggressive monetary policy easing (interest rate cuts and quantitative easing). Regulatory reforms also played a key role in the aftermath of the GFC.
  • The resolution of the 2025 Tariff Crisis remains uncertain. Potential paths include trade negotiations to de-escalate tensions and reduce tariffs, further retaliatory escalations, or economic adjustments to the new trade realities. Government interventions are possible if a recession materialises, but global coordination could be challenging.

Future Ahead: Long-Term Implications

  • The 2008 GFC ushered in a decade of low interest rates, increased regulation of financial institutions, slower global growth, and a rise in populist sentiments.
  • The 2020 COVID-19 crisis accelerated digital transformation, highlighted the importance of supply chain resilience, increased government debt, and potentially contributed to inflationary pressures as stimulus measures unwound.
  • The 2025 Tariff Crisis is likely to reshape global trade dynamics, potentially leading to increased protectionism, supply chain reshoring, and economic fragmentation. Inflation risks may rise due to higher import costs, and global growth could be negatively impacted if trade barriers persist. The long-term competitiveness of economies navigating these trade shifts will be a key concern.

Conclusion

This comparison underscores the distinct nature of each crisis while also highlighting some common investor behaviors, such as the flight to safety and the role of gold as a hedge. The 2025 Tariff Crisis, being an ongoing policy-driven event, introduces significant uncertainty regarding its ultimate economic impact and resolution, particularly in the realm of global trade and inflation.


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