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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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