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External Shocks (Macro)

External shocks are unexpected events that originate outside of a country's economy and can have a significant impact on it. Here are some examples:

  • Natural disasters such as earthquakes, hurricanes, and floods.
  • Global economic crises, such as a recession or financial crisis in a major trading partner.
  • Wars, political unrest, and other geopolitical events.
  • Epidemics or pandemics, such as COVID-19, that can disrupt economic activity and trade.
  • Changes in commodity prices, such as oil, that can impact inflation and economic growth.
  • Technological disruptions, such as the introduction of new technologies that can disrupt established industries and jobs.

External shocks can be difficult to predict and can have significant economic, political, and social consequences. Governments and central banks often have to respond to external shocks by adjusting their economic policies.

External shocks are events that come from outside a domestic economic system. The biggest external shock in recent times was the Global Financial Crisis (GFC) from 2007 onwards, the consequences of which are still being felt today.

Latterly, the covid-19 pandemic has created one of the worst economic shocks to impact the whole world economy.

  • Negative external shocks such as the financial crisis and the pandemic create much instability and can lead to persistent periods of weaker economic growth, higher unemployment, falling real incomes and rising poverty.
  • Positive external shocks might include the emergence of and widespread adoption of technologies used by businesses and households in many countries.

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