- Jul 1, 2018
- 5,003
FINANCIAL TIMES
WORLD ENTERS GLOBAL ECONOMIC CRISIS
The unexpected government deficit of the Russian Federation has created a massive shockwave affecting not only European, but global economies.
With Russia being the epicentre of the crisis, we are already seeing some of the worst effects within the nation. The exceptionally large government deficit has taken away its ability to invest into the national economy, leading to a lower demand in products which has forced certain businesses to shut and lay off its employees. By rendering these employees redundant the situation is only further worsened as consumer demand continues to decrease.
As we continue to watch the Russian economy slow down, the effects of the downturn in consumer demand shall spread beyond its borders and begin to negatively affect the economies of it’s closest trading partners. The economic crisis has led to a crash of the Russian Ruble, with the currency losing value against the US Dollar. This loss of value shall begin to affect Russia’s imports, as products begin to become noticeably more expensive. Consumers will inevitably avoid purchasing foreign goods leading to a decrease in trade.
Russia now finds itself in a complex cycle that only reinforces itself through a feedback loop, only swift and decisive action by the government shall allow it to escape this vicious cycle.
Beyond Russia we have witnessed the stock market tumble, with some of the largest European corporations losing billions in their valuations. Most of these companies primarily serve the defence sector and therefore dependent on government contracts, they are vulnerable to a decrease in the defence budgets of national governments as they seek to cut costs.
These same cost cutting measures will however not only affect these multinationals, but also impact the national economies as lower government spending will lead to a decrease in demand. Government’s without the financial liquidity to negate the impact of the global decrease in demand are at risk of falling into the same vicious circle as the Russian Federation.
Over the next few months we expect the situation to worsen as the effects of the shockwave spread across the world. It is expected that there will be a dramatic increase in unemployment as the market begins to correct itself and reform to a situation where consumer demand has dramatically decreased.
Written by Dr. Michael Shane, PhD