http:// copyright 2007 – biz/ed external shocks to the global economy
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http://www.bized.co.uk
Copyright 2007 – Biz/ed
External Shocks to the Global Economy
http://www.bized.co.uk
Copyright 2007 – Biz/ed
External Shocks to the Global Economy
http://www.bized.co.uk
Copyright 2007 – Biz/ed
Energy Costs
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Copyright 2007 – Biz/ed
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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Copyright 2007 – Biz/ed
Famine
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Copyright 2007 – Biz/ed
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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Copyright 2007 – Biz/ed
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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Copyright 2007 – Biz/ed
Economic Policies
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Copyright 2007 – Biz/ed
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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Copyright 2007 – Biz/ed
Domestic Policies
• Trade Protectionism – for example, the US tariff on steel
• Regulation – impacts on trade patterns• Trade Blocs – NAFTA, EU
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Copyright 2007 – Biz/ed
Uncertainty
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Copyright 2007 – Biz/ed
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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Copyright 2007 – Biz/ed
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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Copyright 2007 – Biz/ed
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