Finance News You Can Use: Understanding Economic Shifts and Their Impact

Although individual governments manage their own economies, there is no doubt that all economies are affected by events across the globe. It's the uncertainty of global economic shifts that challenge the current financial institutions. However, it's not just governments and businesses that need to understand economic shifts, these shifts can impact everyone. It's important to understand the current concerns and what will happen if the predicted economic shifts occur:

Inflation

Ever since the world started to recover from the global pandemic, and the Russians decided to invade Ukraine, inflation has started to climb. In short, global situations, such as Russia's invasion and Israel's current battle, have led to supply chain problems and a reduction in the availability of specific products. That means demand outstrips supply, forcing the price of products upwards at a much faster rate than normal. That's inflation.

Inflation and the subsequent price rises generally weaken economic markets, people buy less and the balance between supply and demand returns, reducing demand and consequently reducing inflation. However, the US is experiencing low unemployment and continued strong demand, which is likely to keep inflation rates up. At the same time, Europe is still experiencing price and wage increases. These factors mean there is a strong likelihood of stagflation. Interest rates are likely to stay high to help reduce inflation.

Supply Chain Issues

This is a serious concern, the greater the issues the harder it is to lower inflation. In the past it was easy to look at demand and use this, along with the production capacity of factories, to dictate inflation and how to reduce it.

Today, this is much harder to do. The energy crisis and the global pandemic, alongside the Russian invasion means there are constant threats of supply chain systems breaking down. This uncertainty helps to maintain product prices and inflation.

Budget Deficit

In Jul 2023 the US budget deficit was over $1.5 trillion. In 2022, it was around $0.6 trillion, and it's returned to roughly this level in 2024. This fluctuation illustrates how difficult it currently is to predict economic growth and the availability of funds.

This is even better highlighted by the Bank of England which has been struggling to deal with climbing inflation since the 2016 referendum. Unemployment rates in the UK have climbed, inflation is up, as is the cost of energy. The BoE can't solve these issues with monetary policies, instead having to rely on restricting demand as much as possible to reduce inflation without causing further pain to British citizens. Budget deficits across the globe are increasing as governments continue to spend money like water, making it extremely difficult to create meaningful financial policies and manage the economy.

Indian Growth

It was thought that China's economy would outpace the US by 2030. However, it has recently started to flounder and looks less and less likely that this will happen. Instead, a global economic shift is happening in the shape of India. At present, it's experiencing massive economic growth and its global growth is likely to rival China's.

In other words, in the near future, it won't all be about China's effect on global economies, India could have the same, or even a greater, effect. At present, India's economy is growing at 8% per year. To put this in context, IMF global growth forecasts have been revised downward every year since 2008-2009 for China. In contrast, India is growing and, by 2030, it is likely to top any table of global economic growth.

Population Growth

Since 1960 the world population has grown by billions every decade or two. In 1960 there were three billion people on the planet, by 2000, that figure had reached six billion. This obviously places a huge strain on resources across the world, particularly in less-developed countries where the population explosion has been greatest.

Alongside this, between 1960 and 2000 life expectancy increased by 16 years. That means more older people need care and social benefits. Again, this increases the demands of each economy. Now, the population growth is slowing and, for the first time, there are more deaths than births. That will increase the fiscal burden further on those employed having to look after those who are retired or unable to work. It's going to have a significant effect on world economics over the next few decades.

Summing Up

Unless you work in the financial markets you may not have much interest in financial news or global trends. However, the truth is that everything that happens globally will affect the price you pay for goods and services. Understanding those trends and the ones which are likely to develop will make it easier for you to be prepared for the future.

The world has changed dramatically in the last 50 years and will do so again. The question is, are you ready to change with it?