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uk

External Shocks
to the Global Economy

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External Shocks to the Global Economy

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Energy Costs

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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

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Famine

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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

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Share Prices

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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

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Economic Policies

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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

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Domestic Policies

• Trade Protectionism – for example,

the US tariff on steel
• Regulation – impacts on trade patterns
• Trade Blocs – NAFTA, EU

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Uncertainty

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Uncertainty
• One of the most significant of the
factors affecting the global
economy
• Business does not like
uncertainty!
• Affects future planning
and investment

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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.

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War

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War
• War increases uncertainty and
leads to potential economic
dislocation
• The Middle East and conflict
in Africa being two such cases

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Natural Disasters

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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?

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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

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