External shocks to the global economy
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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

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External Shocks to the Global Economy

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External shocks to the global economy

External Shocks to the Global Economy


External shocks to the global economy1

External Shocks to the Global Economy


Energy costs

Energy Costs


Energy costs1

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


Energy costs2

Energy costs

  • How does rising energy costs effect us?

  • How does effect you, the student?


Famine

Famine


Famine1

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 prices1

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


Share prices2

Share Prices

  • What products are effected by this trend? The answer is probably in your pocket.


Economic policies

Economic Policies


Economic policies1

Economic Policies

  • Interest rate changes anticipated across the world

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

  • Ben Bernanke, and previously Allen 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 policies in major economies can influence smaller economies around the world


Interest rates

Interest Rates

  • Do the math?

  • If you buy a home for $200,000 with an interest rate of 4%, what are the payments per month over 360 months?

  • If you buy a $20,000 car, with an interest rate of 10%, what are that payments per month over 60 months?


Domestic policies

Domestic Policies

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

  • Regulation – impacts on trade patterns

  • Trade Blocs – NAFTA, EU


Uncertainty

Uncertainty


Uncertainty1

Uncertainty

  • One of the most significant of the factors affecting the global economy

  • Business does not like uncertainty!

  • Affects future planning and investment


Uncertainty2

Uncertainty

  • Can include:

    • Corruption/fraud – Parmalat, Enron – causes loss of faith in markets

    • Political change – Iraq, Zimbabwe, South Africa, China

    • Rumors about potential problems

    • Payment default – Russian Bond Crisis

    • Collapse of major industries – shipbuilding, coal, manufacturing, etc.


External shocks to the global economy

War


External shocks to the global economy

War

  • War increases uncertainty and leads to potential economic dislocation

  • The Middle East and conflict in Africa being two such cases. Darfur and the bombing of pipelines in Nigeria.


Natural disasters

Natural Disasters


Natural disasters1

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 disasters2

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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