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.