World Events and the World Economy

We live in a world of globalization where each country is connected and in many ways dependent on the economic success of other nations. In an ideal world everything would stay the same with only tiny fluctuations.

Every year the world economy is affected by an event, be it man made or natural, which can turn the world upside down and cause repercussions across all continents. In this article we will look at three world events, two man-made and one natural, that have shaped the global economy in the past few years.

The biggest threat to the economy is man-made influences. In 2008 the combined collapse of the global bank Lehman Brothers with American’s housing bubble bursting almost brought down the world’s financial system. It is considered by leading economists to be the worst recession since the Wall Street Crash in 1929.

The crash was primarily caused by banks handing out loans to homeowners to remortgage their property, who couldn’t afford to pay them back. This created a cycle of high borrowing and low prices until the value of the properties were worth less than the remaining mortgage debt, which in turn meant homeowners couldn’t sell or move away. The repercussions of this collapse had worldwide ramifications with large economies such as Germany, Japan, and China plunged into recessions along with many smaller countries. In order to stop their banking system collapsing the UK government provided a bailout package of $88 billion. The effects of the crash are still felt today across the global as countries such as Greece, Italy and Spain are still in economic turmoil.

Another example of a man-made event that has changed the world economy is the United Kingdom’s decision to leave the European Union this year. Immediately after the Brexit vote the value of the British Pound plummeted to the lowest value in 31-years against the dollar and euro. The UK is one of the largest importers from Asia and the vote caused a negative reaction in the Asian stock markets. Brexit could also completely change how the world and Europe trade with each other. The UK economy is one of the largest in Europe, yet if tariffs are put on products then many industries could move their businesses from the UK to the European mainland redirecting the main trade routes.

Nature is an unpredictable force that can also have a big impact on the world economy. The 2011 Japanese earthquake and tsunami, the biggest on record to hit the country in 140 years, sent stock markets across the world down and devalued the price of the yen and oil. Japan was already recovering from an economic downturn when the earthquake happened. One of the most devastating results of the quake was the damage to the Fukushima nuclear power plant that created radioactive leaks. The disaster cost Japan $360 billion in economic damage. The knock on effect of the quake was that it slowed down global growth as key trading ports and airports were shut down. The fallout was so bad that automobile manufactures Toyota, Nissan, Honda, Mitsubishi and Suzuki all temporarily suspended production.

The next big world event that could affect the world economy is the US elections in November. Depending on who wins this could have a dramatic effect on how the world economy reacts.