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


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


Energy costs

  • How does rising energy costs effect us?

  • How does effect you, the student?


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


Share Prices

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


Economic Policies


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

  • 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

  • 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

    • Rumors about potential problems

    • 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. Darfur and the bombing of pipelines in Nigeria.


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


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