Global financial turmoil: Examining its risks and ripple effect on financial systems

Abstract

Over the past two decades, the global economic landscape has faced substantial turmoil, marked by major events such as the 2007 financial crisis and the ongoing challenges posed by the COVID-19 pandemic. This paper aims to theoretically clarify the consequences of the global financial crisis on the developing economy of Kosovo, with a particular focus on its financial system, and to propose potential future reforms in this sector. Using a comparative analysis of different time periods, specifically examining the financial crisis from 2008 to 2023 in Kosovo, the study reveals that the global economic crisis has significantly impacted Kosovo’s economy. This is evident in the pronounced fluctuations in key macroeconomic indicators, including gross domestic product (GDP), trade balance, consumer price index (CPI), unemployment rates, remittances, and foreign direct investment (FDI) during this period. The findings suggest that two fundamental factors — the low level of economic integration and the government’s shift in priorities towards capital investments — have mitigated the crisis’s impact on Kosovo. The paper also highlights the ongoing challenges of inflation and emphasizes the need for strategies to ensure resilience and sustainable economic prosperity in the future.