Http:// Copyright 2007 – Biz/ed External Shocks to the Global Economy

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Copyright 2007 – Biz/ed

External Shocks to the Global Economy



External Shocks to the Global Economy



Energy Costs



Energy Costs

• Rising oil prices affect many businesses worldwide

• Change the nature of demand (e.g. off-road vehicles)

• Potential to generate inflationary pressures

• Possibility of triggering global economic slowdown



Famine



Famine• Succession of poor harvests can lead to famine

conditions• Attempts to grow food to meet increasing

shortages can lead to environmental degradation

• Impact on global economy of dealing with aid problems and the social issues that come with it – refugees, for example

• Lack of access to world markets by developing countries



Share Prices



Share Prices• Share Prices reflect the expectation

of future financial performance• A belief that prices may fall in any area

of the world is sufficient to trigger global market changes

• The share market is now 24-7



Economic Policies



Economic Policies

• Interest rate changes anticipated across the world

• The global capital market means such changes can have significant impacts

• Alan Greenspan – Chairman of the Federal Reserve – seen as being one of the most powerful figures in the world because of the influence he has on US economic policy

• Expansionary/contractionary policies in major economies can influence smaller economies around the world



Domestic Policies

• Trade Protectionism – for example, the US tariff on steel

• Regulation – impacts on trade patterns• Trade Blocs – NAFTA, EU



Uncertainty



Uncertainty• One of the most significant of the

factors affecting the global economy

• Business does not like uncertainty!

• Affects future planning and investment



Uncertainty

• Can include:– Corruption/fraud – Parmalat, Enron – causes

loss of faith in markets– Political change – Iraq, Zimbabwe,

South Africa, China– Rumour– Payment default – Russian Bond Crisis– Collapse of major industries – shipbuilding,

coal, manufacturing, etc.



War



War

• War increases uncertainty and leads to potential economic dislocation

• The Middle East and conflict in Africa being two such cases



Natural Disasters



Natural Disasters

• 1906 – earthquake in San Francisco – the city lives in the shadow of another quake, which will happen sometime – what will be the global effect?



Natural Disasters

• Natural disasters can affect resource allocation and availability and also create massive economic dislocation

• Temperature extremes can destroy crops and lead to global shortage

Documents

Http:// Copyright 2007 – Biz/ed External Shocks to the Global Economy