The world economy is an ever-changing entity, with many factors that can threaten it, both now and in the future. Anyone looking to forecast potential dangers or decide about their investments should get to know what could harm the world economy. It is also important to consider regional risks, sovereign-type currencies, and future threats. Here are nine of the activities that threatens the world’s economy.
1. Natural Disasters
The first threat to the world’s economy comes from natural disasters, which can have far-reaching economic implications, ranging from deaths and destruction of property to disruptions in production and trade. Natural phenomena alone can cause billions of dollars in damage yearly. For example, floods affect many areas across the globe, including China. On Boxing Day, 1996, a massive flood devastated this country, killing thousands and causing about $4.2 billion in economic losses.
2. Temperature Change
Climate change, also known as global warming, can lead to several potentially damaging effects. These include water shortages, drought, and famine. Rising temperatures in Asia could drastically affect the monsoon winds and cause the Indian Ocean to dry completely in thirty years time. It would create major food shortages. In addition, rising temperatures would change rainfall patterns in Africa, which would lead to a loss of arable land and more drought.
3. Oil Shock
Oil is vital to the world economy as it is used to fuel cars and power machines, which can affect agriculture and manufacturing. Oil shocks can seriously damage the world economy because they have far-reaching implications, particularly for developed countries. For example, a severe oil shock in the early 1970s caused higher inflation and unemployment. Intense political instability, including the Arab Oil Embargo of 1973 and the 1979 Iranian Revolution, was also caused by this crisis.
4. Population Growth
Rapid population growth in developing countries could have a disruptive effect on world trade and the economy. For instance, as natural resources are depleted, nations become more dependent on imports. While this can be beneficial in some respects, it can also lead to a decrease in manufacturing and farming. The population of the United States is projected to increase by 50 percent by 2050 – which will lead to an increase in demand for food and mineral resources.
Corruption harms economic growth and stability by increasing business costs, reducing market size, and rising debt levels. In addition, it undermines trust in the government and reduces willingness to invest. Corruption can even lead to a collapse in the national currency, making it even more difficult for a country to raise money.
Unemployment is another threat to the world’s economy, but this has a particular impact on countries with high unemployment levels. For example, unemployment has long been linked to urban riots in England. It suggests that poverty and unemployment are not just social problems but also impact national economies.
7. Global Financial Crisis
A global financial crisis is caused by a sudden decline in the overall health of an economy and can create extreme poverty. It typically occurs when the value of a country’s currency declines, which can happen as a result of low productivity, low government investments, and high-interest rates. Financial crises have occurred worldwide, including Asia, Africa, and Eastern Europe. For example, in 1998, after the Russian crisis, the US dollar rose about 20 percent against the rubble, which caused a contraction in Russia’s economy.
8. Global Water Shortage
More recently, a global water crisis has emerged – about 45 percent of the world’s population is facing water shortages. Climate change has increased water consumption for growing populations – particularly in China and India. Drought and population growth mean these countries have fewer resources available to meet the water demand. In addition, poor sanitation in developing countries leads to diseases such as cholera and typhoid.
On the world stage, war has long been considered a potential economic threat. For example, after World War I, the United States imposed an economic blockade on Germany to punish it for its role in the conflict. It resulted in Germany’s gross domestic product falling by more than 25 percent between 1920 and 1922. The war, combined with dissatisfaction with the Treaty of Versailles and hyperinflation in Germany, led to several revolutions across Europe. Different types of wars can affect the world’s economy.
Trade wars can cause global economic imbalances that could devastate all countries involved. For example, the United States trade war with Japan in the 1980s led to a trade deficit for America. The US is still feeling the effects of this conflict today through a higher trade deficit, which has impacted its national wealth.
A strategic war is caused by the actions of one country against another to gain control over resources, markets, or military power. These wars are typically fought to secure control over large amounts of land and resources, especially oil and agricultural supplies. For example, the Suez Crisis in 1956 resulted from British Prime Minister Anthony Eden’s efforts to gain control of oil supplies from the Middle East.
Military wars can result from large-scale attacks on a nation’s economy. For example, the military campaigns of the early 20th century, in which people fought to secure resources and markets, often led to war. It is exemplified by World Wars I and II in Europe, which were caused by economic competition between Germany and Britain.
Increasing wealth, combined with population growth, unproductiveness, and instability, has increased threats to the world economy. While this may appear to be a bleak picture, it is true that some of the threats have been overcome and have only served to highlight the resilience of the world’s economy. For example, in recent years, financial crises have decreased frequently, but their consequences for national wealth and employment levels are still significant.