External Shocks to the Global Economy

1. External Shocks to the Global Economy

2. External Shocks to the Global Economy

3. Energy Costs

4. 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

5. Energy costs • How does rising energy costs effect us? • How does effect you, the student?

6. Famine

7. 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

8. Share Prices

9. 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

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

11. Economic Policies

12. 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

13. 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?

14. Domestic Policies • Trade Protectionism – for example, the US tariff on steel • Regulation – impacts on trade patterns • Trade Blocs – NAFTA, EU

15. Uncertainty

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

17. 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.

18. War

19. 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.

20. Natural Disasters

21. 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?

22. 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