Free Essay

Global Economics Issues & Prospects

In: Business and Management

Submitted By DN2025
Words 1566
Pages 7
According to the IMF, fiscal stimulus must be customized to the nature of the crisis. That’s why a slow acting fiscal policy can be used on the current crisis (while usually it comes too late and adds up inflation). Expenditure measures are hence appropriate because of their direct stimulation of the demand. Moreover, due to the lack of accurate and reliable estimates, IMF also recommends the diversification of the fiscal policies used in order to maximize their effectiveness.
The global nature of the current crisis and the different capacities of the worldwide governments involved imply the necessity to coordinate the stimulus plans in order to yield better and quicker benefits that will help out the countries with lower abilities (free-rider externalities effect).
By analyzing the situation from 2008 to end 2010, it appears that the recovery is on track but risks and uncertainty remain. The next move then is to consolidate and create an adequate environment for balanced and sustained economic growth, fiscal sustainability and financial stability on a worldwide level.

Using short term fiscal policies, the governments should first increase their credibility and consolidate their budgets by employing fiscal rules. Second, the exit from the exceptional fiscal policies used should be well timed to a strong growth or delayed if conditions are still weak: “difference between US - Europe vs. Japan”. Third, the fiscal policies used in developed countries will generate capital inflows towards emerging countries. These inflows will boost real-estate sector, increase the value of the stock market, and strengthen the local currency which will affect their competitiveness on the international trade level and might create a resilience to let the currency appreciate. If this were to happen, they might suffer counter measures from their trading partners.

By taking Lebanon’s example, the reduction of the public debt is top priority. This can be achieved by more fiscal discipline and fixing the main budget burden: the electricity sector. Moreover Lebanon benefits from a cushion to its public debt: the banking sector, that is why it is very important to safeguard its stability. The cash inflows into the bank deposit accounts kept increasing during the crisis (due to attractive rates) thus increasing banks balance sheets and safety net. Moreover Lebanon’s economic structure has a low percentage contribution from exports thus there was no real impact on growth due to the lower global demand.

If we go back to a global scale and analyze the situation today, we notice the differences between emerging countries and advanced countries. The emerging countries have received strong capital inflows which helped in lowering borrowing cost, but have also created more challenges, like overheating of the economy or risks of bubbles. The advanced countries are still in slow growth phase, which has created high unemployment and low interest rates have yet to be applied and these countries still need to consolidate their deficits. In order to declare the crisis over, unemployment must go down. A solution to this is to boost skills by implementing lifelong learning techniques: change from “lifelong employment” to “lifelong employability”. On the emerging countries side, growth has prevailed in the past years. The challenge now is how to fight inflation (Brazil-China) and tackle the fiscal deficit (India). So more spending should be done on social goals and advancing the structural reform agenda.
Turkey is an example of emerging market which successfully tackled the crisis. In 2008, it benefited from a competitive dynamic private sector which reinforced its currency and helped with disinflation. The side effect to that was lowering its competitive edge vis-à-vis lower cost countries. However it will now have to consolidate macroeconomic policy and focus on a more growth employment friendly microeconomic environment.

One of the successes of advanced countries economy is Sweden: high saving, low interest rates and an improving job market encouraged consumers to increase spending. In addition to this, Sweden’s low public debt and sizeable budget surplus helped the authorities tackle the crisis without storing up long-term problems.
This all seems quite perfect, let’s start by analyzing the mechanism behind this success.
The low interest rates applied during the crisis are part of the monetary policy used to boost the economic recovery. In fact, low interest rates will allow more borrowing in the private sector, which will result in more investments. More investments means more jobs, more income, more taxes, more money to the government, more public investments and a positive effect GDP. We can see in this graph how the unemployment has worsened during the peak of the crisis, and has picked up a downward trend towards previous levels.
This recovery in the unemployment means growth and growth will give confidence to households which will then spend more and buy more durable goods (another sign of good health in the economy).
Let’s not forget to neutron the classical dilemma that every economy faces: inflation or unemployment – the arbitrage between these two is crucial. We can see (according to OECD) that inflation is being contained by moderate pressures from the syndicates.
In fact, these normally have a tendency to put pressure on the company managers to increase wages. (The impact on the firms will depend on the elasticity of the demand of labor). If wages are increased, this will imply more costs on the firms, this raises end product prices, which will then impact the usual basket of consumable goods by which we measure the CPI; hence creating inflation. A good thing in the Swedish economy is that these wage pressures have remained low (as mentioned earlier), thus allowing nominal rates to remain low (above consequences).
The global nature of the crisis ended up lowering the aggregate demand of foreign trade counterparts, which means lower income from exports. This has surely been a concern to the Swedish government because the economic structure of the GDP is highly based (~50%) on exports (the economy is highly oriented towards exports). If we take the Y=C+I+G+X–M formula, we can definitely see how investments (as stated by the OECD report) have counterbalanced the direct impact of a slowing export growth (due to lack of international demand) on GDP. It is worth mentioning that privately owned firms account for about 90% of industrial output.
If we take a look at the major sources of financing for investments (national savings, borrowing from foreigners, government saving), we can already see (OECD) that Sweden has high national savings and low public debt. The government savings is determined by netting tax revenues and government expenditures. The budget surplus Sweden benefits from, gives the government a margin in its case of available policies. In fact, this surplus is due to an economy that has matured, is stable, and has implemented a very high tax rate. It is considered as one of the most rigorous tax systems because it starts applying very high rates on low incomes.

According to the OECD, the Swedish economy is on track to recover from the crisis. It needs now to consolidate its credibility and set up the grounds for further expansionary policies. What is most flagrant though is that, as described by the OECD, Sweden seems to be the model of the perfect economy. We can point out weaknesses that need to be maintained:
If we consider that revenue of individuals is composed of consumption, savings and taxes (R=C+S+T), we can state that a very high percentage of the individual revenue goes into taxes; this keeps money flowing into the government treasury, but also implies higher welfare dependency. This dependency is becoming more and more of a burden to the Swedish economy. We can see how, in anticipation of future increases in the government expenditures (to cover for the welfare dependency), individuals have a high saving ratio. In fact, they consider that the government will need to either cut the spending on this issue, or increase more its taxes (already high). Therefore reforms must be put in place to reassure the population vis-à-vis the generational effect of the fiscal policy. It’s also worth mentioning that the demographic structure of Sweden has changed: life expectancy has reached a minimum of 80 for both genders, while retirement can start as early as 61 years old. A need for more pension funds will be necessary, hence even more saving from individuals. This tendency to save more and more will slow the economic growth in the near future – saving is the opposite of investment, and without investment, there is no growth. So even if the Swedish economy has overcome the crisis very quickly, it appears to be nurturing the condition of a future slow down in the economy.

As we can see on the above studies, structural unemployment is bound to rise (more retired people, more people welfare dependant). A solution to that can be “lifelong employability” (adaptation of the jobs to the new demographic age profile). Growth will slow progressively (savings are increasing to maintain a constant standard of life). A solution to that are new reforms to the welfare and pension services.

Finally, as it appears, the policies used need to be adapted to each economic condition. We saw how autonomous stabilizer helped with the quick recovery of Sweden, but what is most important, is to have a good forecast of future programs in order to diversify/adapt and implement the necessary discretionary policies.

Similar Documents

Premium Essay

From the Asian Miracle to an Asian Century

...From the Asian Miracle to an Asian Century? Economic Transformation in the 2000s and prospects for the 2010s: Review Essay The chosen article, “From the Asian Miracle to an Asian Century? Economic Transformation in the 2000’s and prospects for the 2010s” by Dr. Yiping Huang and Bijun Wang was published by the Reserve Bank of Australia (RBA) as part of proceedings of their annual conference “The Australian Economy in the 2000s” held by Bank's Economic Group. 1.Introduction The article examines Asian economies key transformation during the 2000s and provides prospects for the next decade. In this review essay, I will summarise the article consistent with sections provided by the article and offer appraisal from the economic and political perspective of the proposed prospects. Post significant transformation of Asian economic during the 2000s, the Asian markets is now major contenders in the global market. Their participation in the global market has reached a point where their actions bring global economic impacts of great consequence for the financial, commodities and goods markets. This rapid expansion into the global market brings concerns of potential global economic crisis. 2. Integrated Supply Chains and Dominant Commodity Consumers Past decade reveals integration of supply chains, industrial restructuring and labour allocation contributed to overall Asia market’s GDP growth with major acceleration from China and India. Vertical integration of supply chains with China...

Words: 1952 - Pages: 8

Premium Essay

Debt Crisis

...July‐December 2011               SR/GFC/11‐9  SESRIC REPORTS ON GLOBAL FINANCIAL CRISIS – 9 SESRIC REPORTS   ON THE GLOBAL FINANCIAL  CRISIS                                         European Debt Crisis and Impacts on  Developing Countries    STATISTICAL ECONOMIC AND SOCIAL RESEARCH AND  TRAINING CENTRE FOR ISLAMIC COUNTRIES (SESRIC)  1  SESRIC REPORTS ON GLOBAL FINANCIAL CRISIS – 9     2011‐2 Issue    EUROPEAN DEBT CRISIS AND IMPACTS ON DEVELOPING  COUNTRIES    July – December 2011    SESRIC  Reports  on  Global  Financial  Crisis  :  The  financial  crisis  which  started  in  July  2007,  when  investors  lost  their  confidence  in  the  mortgage‐  and  asset‐based  securities  in  the  United  States,  has  deepened  during  2008‐2009  with  a  global  reach  and  affecting  a  wide  range  of  financial  and  economic  activities  and  institutions  in  both  developed  and  developing  countries  around  the  world.  As  the  crisis  deepened, the governments of major developed and developing countries as well as international financial  regulators attempted to take some mitigation actions and coordinate efforts to contain the crisis.  Given  this  state  of  affairs,  the  SESRIC  has  been  preparing  short  reports  since  May  2009  with  the  aim  of  monitoring  the  developments  related  to  the  current  global  financial  crisis  at  the  global,  regional  and national  levels.  In  particular,  these  reports  focus ...

Words: 3090 - Pages: 13

Free Essay

Economic Environment

...accompanied by other global mining companies such as Rio Tinto to confront a retrogressive market with falling industrial commodity prices and increasing costs. The future of Australia's mining boom which is largely dependent on Chinese demand for commodities driven by its economic growth is of particular concern (Stewart 2012). Application of Concepts Both economic environment and the concept of corporate social responsibility (CSR) can be demonstrated in this article. In particular, the nature of BHP's mining business, which is regarded as a significant contributor to Australian economy (Maddock and McLean 1987) determines its need to pay close attention to the opportunities and threats posed by the global economic environment (Blainey 2003). For example, slowdown in China's economic growth and recent European economic recession have impact on Australia's resource exports (Stevens 2012). The Australian mining industry which has once benefited from the surge in demand driven by the rapid growth of emerging economies in Asia since 2003 and the shortage of global supply (Stevens 2012) is now facing a difficult period signaled by the drop of China's GDP growth from 10 per cent to a mere 8 per cent (Connolly and Orsmond 2011). China's demand for resources has declined as a result of its slowdown in industrialisation and urbanisation, causing a significant decrease in global steel prices and thus a huge downward influence on BHP's profits (Stevens 2012). CSR raises issue on BHP's reputation...

Words: 794 - Pages: 4

Premium Essay

Entrepreneurial Development Studies

...Banks will enhance the assessment of women entrepreneurs to financial resources”. Discuss Evaluate the impact of SEEDS in the implementation of MDGs in Nigeria Analyze the impact of Globalization on the economic Development of Nigeria The incidence of the Niger Delta militants groups and its consequences to entrepreneurial development in Nigeria Evaluate the power, composition and functions of NDDC Assess the impact of the multinationals in the Nigerian Economy with regard to FDI and FPI Youths and entrepreneurial Development: Realty or Myth Evaluate the implementation of MDGs and the realization of the objectives by 2015. The effect of entrepreneurial development on poverty reduction The impact of privatization on Nigerian economic development and growth. Evaluate the impact of different reforms in the Nigerian reforms on the Nigeria economy. Women entrepreneurial development (WED) and poverty: what a paradox The impact of women entrepreneurs in SMEs on poverty alleviation Evaluate the cultural factors in Nigeria and entrepreneurial development. Evaluate the financial factors in Nigeria and entrepreneurial development. Evaluate the environmental factors in Nigeria and entrepreneurial development. Gender, entrepreneurship and globalization: Barriers and prospects. Intrapreneurship and achievement of organizational objectives Evaluate intrapreneurship as a motivational concept in an organization Assess the impact of entrepreneurship and youth development. Assess...

Words: 1100 - Pages: 5

Premium Essay

Trade Policy

...Trade Policy Reforms in India Geethanjali Nataraj NCAER, New Delhi For the ICRIER-SABER workshop, 29-30 June p, 2009, New Delhi. Trade Policy in India • Trade Reforms form the crux of the economic reforms in India. • Export Promotion has been and continues to be a major thrust of India’s trade policy • Accordingly, policies have been aimed at creating a friendly environment by eliminating redundant procedures, increasing transparency by simplifying the processes involved in the export sector and moving away from quantitative restrictions, thereby improving the competitiveness of Indian industry and g p reducing the anti-export bias. • Steps have also been taken to promote exports through g g multilateral and bilateral initiatives and giving several incentives to exports to cope with all uncertainties at the global level. Features of Trade Policy Reform in India • • • • • Free imports and Exports Rationalization of tariff structure/reducing tariffs Decanalisation Liberalization of the exchange rate regime. Setting up of trading houses, SEZ’s and Export houses SEZ s promotion industrial parks. • Various exemptions under the EXIM policies to boost exports and imports and make the trade policy regime transparent and less cumbersome. p Towards a more open economy 1990 91 1990-91 Peak Import duties ( Manufactures ) Import Controls Trade goods)/GDP ratio ( %) Software exports ( & billion) Worker remittances ( $ billion) FDI ($ billion) g y Foreign currency reserves ($...

Words: 1174 - Pages: 5

Premium Essay

The Eu

...Throughout the past 60 years the European Union has established itself as a leader in dismantling national level economic and cultural barriers in return for a meso-scale regional framework which has gone on to become a key feature of globalization. In wake of the atrocities committed during World War II, Europe sought to establish a community of peace, stability, and prosperity with the common interest of humanity (De Vasconcelos, 2005). This unification has been achieved through the liberalization of four essential freedoms of movement: goods, service, capital, and labour (Molchanov, 2007). Even reconciliation between former enemies, such as France and Germany, came from the understanding that new world order has dampened the ability of nations to solve their problems on their own. Integration at a regional level can be thought of as integral part of globalization as it has become Europe’s primary defense amidst rising global competition (Murray, 2011). In fact, Peter Schmitt-Egner identified the process undertaken by the EU as transnational regionalism, as it seeks to 1: Utilize European integration as arena for transnational learning to foster internal regional development and; 2: Enhance regional competence to create a ‘Europe of Regions of Citizens’ (Schmitt-Egner, 2002). For Europe, regional integration has presented itself as a window of opportunity that allows for: “outward looking trade policy, internal competitiveness and involvement in cross-border agreements” (Downs...

Words: 1667 - Pages: 7

Premium Essay

Population Growth

...staggering seven billion, raising alarming concern for the sustainability of our planet. Rapid population growth and economic development are increasing the demands on natural resource stocks (Orimoogunje, 2011). Sub-Saharan Africa is projected to become the primary source of population increase (United, 2002), yet lack of infrastructure represents one of the most significant limitations to economic growth, environment management and achievement of the Millennium Development Goals (Paul M. Pronyk, 2007). Uneven resource consumption is wasteful and contributes to the maldistribution of basic resources in developing countries. Studies show that high income earning countries constitute a smaller number of the population, but consume nature’s resources much faster than developing countries; this adds to the inequality of the world and compromises the stability of our ecosystems to support population growth (Kemp, 2004). The global population is expanding and human resource consumption rates are increasing adding to the environmental problems we face today. During the last century alone, global population in the world has grown from 1.65 billion to 7 billion (World population). In the gap between when my parents were born and I was born the population has roughly doubled from 2.25 billion in the late 1940’s to 4.5 billion in the early 1980’s (Nations, world population prospects, the 2010 revision, 2011) . Population growth continues to grow around 83 million people per annum (Population...

Words: 1929 - Pages: 8

Premium Essay

The Importance Of Global Leadership

...of leadership, few attempts have made to unify the plethora of existing definition. The lack of precise, rigorous and commonly accepted definition of global leadership limits the field’s conceptual and empirical progress. The recommended practice for construct definitions, they first review and critique existing definitions of global leadership. Second, one they specifically focus on explicating the global construct by global leadership occurrence and propose three magnitudes with this sub-construct can analyzed: complexity, flow, and presence. At last, they offer refused construct definition and concluded with implications for research and practice....

Words: 1258 - Pages: 6

Premium Essay

Fdi in Emerging Market

...Capital Markets Consultative Group September 2003 This report reflects the views of private sector participants in a working group examining the determinants, trends and prospects of foreign direct investment (FDI) in emerging market countries. The views expressed should not be attributed to the staff and management of HSBC, members of the CMCG, the International Monetary Fund, and the World Bank. -2- Contents Page Main Findings ..........................................................................................................................3 I. II. III. Introduction....................................................................................................................10 Overview of FDI in EMCs.............................................................................................14 Motivation, Location, and Decision-Making.................................................................15 A. Motivation ...............................................................................................................15 B. Locational Determinants of FDI..............................................................................16 C. Decision-Making .....................................................................................................19 Financing, Global Conditions, and Managing FDI Risks..............................................21 A. Financing Business Ventures in Emerging Markets ..........................................

Words: 20451 - Pages: 82

Premium Essay

Economic Growth

...A-LEVEL ECONOMICS ECON4/Unit 4: Mark scheme 2140 June 2014 Version 1.0 Final The National and International Economy Mark schemes are prepared by the Lead Assessment Writer and considered, together with the relevant questions, by a panel of subject teachers. This mark scheme includes any amendments made at the standardisation events which all associates participate in and is the scheme which was used by them in this examination. The standardisation process ensures that the mark scheme covers the students’ responses to questions and that every associate understands and applies it in the same correct way. As preparation for standardisation each associate analyses a number of students’ scripts: alternative answers not already covered by the mark scheme are discussed and legislated for. If, after the standardisation process, associates encounter unusual answers which have not been raised they are required to refer these to the Lead Assessment Writer. It must be stressed that a mark scheme is a working document, in many cases further developed and expanded on the basis of students’ reactions to a particular paper. Assumptions about future mark schemes on the basis of one year’s document should be avoided; whilst the guiding principles of assessment remain constant, details will change, depending on the content of a particular examination paper. Further copies of this Mark Scheme are available from aqa.org.uk Copyright © 2014 AQA and its licensors. All...

Words: 7373 - Pages: 30

Premium Essay

The Case of Elecdyne

...market chosen are presented. It is concluded that the expansion of the firm in a foreign market could highly support the increase of its profitability but only if certain terms are met, as indicatively highlighted in the sections that follow. In any case, it seems that the continuous monitoring of the relevant process is necessary for avoiding unexpected failures. 2. Current and Future Business Environment One of the most important characteristics of the global market is its high competitiveness, a fact that has been related to the expansion of globalization (Griffin 2008). At this point, the following issue appears: how the potential of a firm to face the challenges of the global environment can be measured? The use of strategic tools, as those presented above, could possibly help towards this direction. Still, it is necessary to refer also to the global market trends in regard to the industrial sector involved (Nummela 2010). In the case under examination, emphasis should be given on the electronics industry. The global electronic industry is characterized by...

Words: 2339 - Pages: 10

Premium Essay

Sanjina

...Full Report can be downloaded at: http://www.un.org/en/development/desa/policy/wesp/index.shtml World Economic Situation and Prospects Executive Summary 2012 1 Executive Summary Global economic prospects for 2012 and 2013 The world economy is on the brink of another major downturn The world economy is teetering on the brink of another major downturn. Output growth has already slowed considerably during 2011 and anaemic growth is expected during 2012 and 2013. The problems stalking the global economy are multiple and interconnected. The most pressing challenges lie in addressing the continued jobs crisis and declining prospects for economic growth, especially in the developed countries. As unemployment remains high, at nearly 9 per cent, and incomes stagnate, the recovery is stalling in the short run owing to the lack of aggregate demand. But, as more and more workers are out of a job for a long period, especially young workers, medium-term growth prospects will also suffer because of the detrimental effect on workers’ skills and experience. The rapidly cooling economy has been both a cause and an effect of the sovereign debt crisis in the euro area, and of fiscal problems elsewhere. The sovereign debt crises in a number of European countries worsened further in 2011 and aggravated weaknesses in the banking sector. Even bold steps by the Governments of the euro area countries to reach an orderly sovereign debt workout for Greece have been met with continued financial...

Words: 6774 - Pages: 28

Premium Essay

How the Economic Environment Changed in the Last Year?

...How has the global economic environment changed in the last year? Following two years of weak and uneven recovery from the global financial crisis, the world economy is teetering on the brink of another major downturn. Output growth has already slowed considerably during 2011, especially in the developed countries. The baseline forecast foresees continued a pale growth during 2012 and 2013. Such growth is far from sufficient to deal with the continued jobs crises in most developed economies and will drag down income growth in developing countries. In this paper I will be speaking about the global economy, but first, I will elaborate and concentrate on the strongest economy in the world, the US. In the past year, the most important issue in the United States was employment. All of this year we have seen the employment rate change from 8.1% 8.3% which is a very narrow range, but still means that 12.8 million people are out of jobs, which is extremely bad, but on the other hand, if you wanted to compare it to the rate in 2008, where the economy was falling apart, things seem optimistic. It’s not the government isn’t creating jobs, because it is. The problem is that it’s not creating enough jobs to soak up all the people who were laid off. On average, the country has been adding 150,000 each month, which is good, but not fast enough for people who have been laid of for a while to return to the job market. Another problem is the housing market. In comparison...

Words: 1079 - Pages: 5

Premium Essay

Sez in India

...Special Economic Zones in India were established in an attempt to accelerate foreign investment and endorse exports from India and recognizing the need of a global platform to expose the domestic firms and producers to the competitive world market. The announcement of formulating a Special Economic Zones policy in India was made by the government in April 2000 and was anticipated to be an overseas province for trade purposes, commercial operations, duties and taxes. SEZs when equipped are anticipated to provide premiere infrastructure services and sustenance services, besides permitting for the tariff free import of merchandize and raw materials. Furthermore, attractive financial subsidiaries and trouble-free custom tariffs, banking and other methods are provided in such business zones. Establishing SEZs is also recognized as communications development methods. Mentioned below are some of the salient features of Indian Special Economic Zones: Indian SEZs are developed by government, private and joint sector, unlike its international counterparts where zones are chiefly maintained by their respective governments. This provides equal prospects to both Indian and global players. Government has allocated a least favorable area of 1,000 hectares for Greenfield SEZs. Although, there are no limitation in context of favorable area in constructing sector specific SEZs. 100% of Foreign Direct Investment is allowed for all endowments in Special Economic Zones, apart from activities...

Words: 605 - Pages: 3

Premium Essay

Globalization

...503 POSEBNI PRILOG George Macesich* GLOBALIZATION: PROBLEMS AND PROSPECTS Globalization on Course Thanks to increasing international trade in goods and services, capital flows, and operational linkages among business firms, worldwide integration and interdependence is now a fact of life. This is globalization.1 For all of its many problems, giobalization is worth pursuing as a way to raise the world’s living standards. Its call for open markets is direct. It is often not simple to put in practice as public policy. Its decline during the turbulent years between World War I and II underscores how difficult it is to put such policy in place. Nevertheless, by the I 950s the world economy again resumed its upward trend toward globalization. Still, the road is not smooth. Turbulence In Capital and Money Markets Critics of the International Monetary Fund (IMF) argue that the JiMF’s mistakes may well have created a backlash against globalization in the post-Cold War years.2 The Asian and Russian crises in the closing years of the 1990s and IMF attempts at fixing problems complicated the advance of Western-type market economies. A case in point is Malaysia, which in September 1998 effectively cut * George Macesich, profesor i direktor na Institute for Comparative Policy Studies, Research and Exchanges na Florida State University, Tallahassee, Florida, SAD. Ovaj je rad pripremljen za seminar koji je održan 27. 3. 2003. na College of Engineering, University of South...

Words: 2824 - Pages: 12