Early 1990s recession

The impacts of the recession contributed in part to the 1992 U.S. presidential election victory of Bill Clinton over incumbent president George H. W. Bush.

Primary factors believed to have led to the recession include the following: restrictive monetary policy enacted by central banks, primarily in response to inflation concerns, the loss of consumer and business confidence as a result of the 1990 oil price shock,[1] the end of the Cold War and the subsequent decrease in defense spending,[2] the savings and loan crisis and a slump in office construction resulting from overbuilding during the 1980s.

[15] Particularly hard hit were Canada's real estate markets, the building industry, especially factory construction, and consumer confidence.

[18] This suggests the Bank of Canada's restrictive monetary policy overshot its target, suppressing GDP and employment growth in 1992 and 1993 in what would normally have been an economic recovery period.

The collapse of the Soviet Union in 1991 led to a 70% drop in trade with Russia and eventually Finland was forced to devaluate, which increased the private sector's foreign currency denominated debt burden.

At the same time authorities tightened bank supervision and prudential regulation, lending dropped by 25% and asset prices halved.

Combined with raising savings rate and worldwide economic troubles, this led to a sharp drop of aggregate demand and a wave of bankruptcies.

[28] All the composants of GDP were depressed in 1993:[28] The weak economic climate resulted in significant increase in unemployment and public deficits.

[29] The Conservative government which had been in power continuously since 1979 managed to achieve re-election in April 1992 after the replacement of long-serving Margaret Thatcher with John Major as prime minister in November 1990 helped fend off a strong challenge from Neil Kinnock and Labour.

The Bank of Japan raised interest rates to cause an inverted yield curve and reduced M2 money supply increases to tame the property asset bubble.

[31] The Progressive Conservative government of Brian Mulroney in Canada and the successful presidential election campaign of George H. W. Bush in the United States may have been aided by growth in 1988.

However, neither leader could hold on to power through the last part of the recession, being challenged by political opponents running on pledges to restore the economy to health.

Bush initially enjoyed great popularity after the successful Persian Gulf War, but this soon wore off as the recession worsened; his 1992 re-election bid was particularly hampered by his 1990 decision to renege on his "Read my lips: no new taxes" pledge made during his first campaign in 1988.

He resigned as prime minister and party leader in 1993, and the Progressive Conservatives collapsed in the election held later that year, winning only two seats.

Weakened by the recession and corruption scandals, the Socialist Party suffered severe defeats in the 1992 local elections (regional and cantonal) and the 1993 legislative elections (winning only 53 seats out of 577, its worst turnout until 2017) where the RPR-UDF right-wing coalition were returned to power with a massive majority of 449 seats out of 577.

[33] In the United Kingdom, there was a significant wave of rioting at the height of the recession in 1991, with unemployment and social discontent being seen as major factors.

Areas affected included Handsworth in Birmingham,[34] Blackbird Leys in Oxford, Kates Hill in Dudley, Meadow Well on Tyneside, Ely in Cardiff and Hartcliffe in Bristol.