8 Countries Hit Hardest by the Global Financial Crisis

August 24, 2009

8 Countries Hit Hardest by the Global Financial Crisis

This guest post is written by Linda McCormick.

(If you would like to write a guest post for Two Pennies Earned, please email me at alfontin [gmail]).

From time to time throughout history, surprising events have occurred that have left a wake of devastation in their paths. The recent financial crisis has been one of these events. Only a handful of people knew of the potentially negative consequences of their actions, but this didn't stop them, and no one could predict the butterfly effect that would ensue.

Very few countries have escaped being marred by the collapse of the financial markets, and while it's easy to become complacent by the current state of the global economy, it's important to bear in mind how badly some countries have been affected. Not surprisingly, some of the worst-hit countries were those already struggling to keep their heads above water, but hard hit, too, were countries that have long been the bastions of the financial world. The following countries suffered the worst effects of the global financial meltdown.

1. Iceland

People knew there was something really wrong when it was revealed that Iceland was bankrupt. A national government reporting bankruptcy is not something you hear every day, and it made the impact of the financial situation hit home. Iceland found it impossible to pay back its external debts. It basically devalued its currency, the krona, which led to the country not being able to afford any imports. What was more alarming, Iceland had become a major financial intermediary, with many corporate and personal bankers securing funds in accounts abroad--accounts that effectively disappeared in the bankruptcy, leaving many businesses in limbo.

2. Pakistan

A recent report by UNICEF states the financial crisis has had a direct and devastating effect on the already-impoverished population of Pakistan. A doctor working in Karachi, Dr. Noreen Anwar, believes that there has been a whopping 30 percent increase in the number of malnourished children in the country. Even before the crisis, 38 percent of children were moderately or severely underweight and families were finding it extremely difficult to survive. Food prices have soared, with basic ingredients like flour now triple the price of what it was last year, making it completely unaffordable. Families who were already struggling now consume worse food, have to eat less frequently, and have been forced to pull their children out of school to send them to work to raise enough money to live. It doesn't help either that the country seems to be in constant conflict, resulting in over two million people having to leave their homes and live in squalid refugee camps.

Of course, many other Asian countries have been badly affected by the collapse of the markets in the west, and may not have been hit so hard had the fall not been so abrupt. Few had appropriate measures in place to deal with such a blow to their economies, yet the Asian Development Bank predicts Asia will be one of the first to emerge from recession.

3. Brazil

Following a decade of rapid growth, many Latin American countries have been hard hit by the crisis, especially Brazil. The country had grown to be the world's tenth biggest economy, with a record $218 billion in foreign reserves. Since the financial bust, Brazil's once high-riding currency has lost 53 percent of its value against the dollar, and, along with Argentina, Bolivia, Colombia, Mexico, and Peru, has seen billions wiped off share values. But it is the sharp drop in demand for commodities and exports that is affecting the country so badly.

4. Ireland

Only a few years ago, Ireland was regaling economic boom times. Industries were growing, people were moving there in droves (especially Eastern Europeans looking for a better life), and times were good--expensive, but good. Now it's a totally different story. As of September 2008, Ireland has officially been in a recession. The property bubble has burst, construction has ground to a halt, and unemployment figures are the highest since records began in 1967, with no evident slow in decline. Many immigrant workers are heading home and the Irish are once again forced to look for work overseas, as they have done so many times before. And, to add insult to injury, the government has recently introduced more taxes, disguised as levies, which have reduced the average worker's take home-pay, making living even harder.

5. South Africa

A number of African countries have been finding times very tough. Significant cuts in exports and a steep decline in commodity prices have seen many of the country's mines and factories shut down or downsized. It doesn't help that governments have devalued their currencies to such an extent that very few can afford to buy everyday goods.

In South Africa, where a large proportion of the world's diamonds are excavated, many miners have been given extended leave by diamond giant DeBeers, resulting in a 30 percent drop in diamond prices (so if you're about to pop the question, now's a good time to get a good deal). This has also affected Botswana's diamond industry, where it accounts for 70 to 80 percent of export earnings.

6. Zambia

In Zambia, a country that depends on its mineral wealth, copper prices have plummeted dramatically, and with nothing else to bolster its economy, the government is panicked. But unlike many Western countries, where the governments have come to the aid of businesses and banks, the opposite is being recommended in Africa. Many believe this would be a waste of public funds and would possibly only result in further corruption.

7. The United Kingdom

The UK is still reeling from the effects of the financial meltdown. When looking at the losses in terms of gross domestic product (GDP), the country was hit harder than most. Racking up the biggest losses in the world--£20 billion, or 3 percent of GDP, Britain's economy shrank this year at its fastest since records began in 1955. This is related to both the subprime crash in the U.S. and a long period of unchecked lending in the UK. It is now incredibly difficult for UK residents to get any form of credit, including mortgages. Banks are increasing fees in an effort to recoup some of their losses, and unemployment is at its highest since the 1980s.

8. United Arab Emirates

Until recently, Dubai, the most populous city of the seven emirates, seemed to be growing at a ridiculous speed, with new structures being erected at a rate of knots. Media companies moved to the city, and new businesses relocated to the boom town. Today, the construction sites are almost at a standstill, unemployment is rising, and retail stores are displaying “80% off” discount signs on their windows--signs which aren't so good for the city, or the country. But then, many people were wondering how long the gold rush would last in Dubai. How elaborate could a desert seaside town become before the overindulgent spending was stopped in its tracks? Dubai, unwittingly, has become a perfect miniature example of the global economy today.