The life after black gold (oil) - Essay Example

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That means the financial crisis that plagued the US economy during 2008-09 is certain to affect other countries across the world. The paper explores…
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The life after black gold (oil)
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Sur Supervisor How the American economic crisis (2008-09) affected other countries in the world? Catherine Kampell writes in the New York Times, "Every country’s economy is intertwined with every other country’s economy". That means the financial crisis that plagued the US economy during 2008-09 is certain to affect other countries across the world. The paper explores how and to what extent different countries are affected on the aftermath of the US economic crisis.
According to Bulent Gokay, it was the worst financial crisis in the US since the days of Great Depression witnessed during 1929 and onwards. Initial impact of the US crisis across the world was so huge that crude oil prices that peaked at $147/barrel came down crashing in the range of $40-45/barrel in March 2009 due to fear of reduced demand not only in the US but also across the world. Laws of economics do play its tricks to acquire new price equilibrium in line with changed demand and supply scenario. Reduced crude oil price certainly eased the balance of payments issue of many small developing countries who were mainly importing oil for their domestic consumption (Meyn & Kennan).
This financial crisis led to the decline of the US economy and that in turn, affected most of the countries in the world (Gokay). Immediately after the economic crisis in the US, the Wall Street Journal reacted that Chinas economic growth reduced somewhat in the third quarter of 2008 due to lesser demand of its products in the export market. That was supposed to have its ripple effect on employment and thereby domestic consumption. This would have further effect on the private sector investment growth (Marcelis).
A year later, real impact of the US economic crisis began bothering Chinese economy significantly. As Andrew Batson reports in Wall Street Journal in 2009, Chinas exports declined by 22.6 percent to $91.94 billion in April. It is pertinent to note that exports from China were already down by 17.1% in the month of March. To prevent severe setback to Chinese economy, government was already providing huge stimulus packages increasing capital spending during March and April. Demand from the private sector was weak and much of the investment spending was coming from Chinas central bank. Fan Jiaping, the economist from the State Information Center categorically said then, "Export demand doesnt show any signs of turning for the better".
The following graph presents how exports declined between 2008 and 2009.
It is important to note that China is one the largest exporters to the US and therefore not only its exports to the US was impacted but also its imports declined by 23% to $78.8 billion in April 2009. During the period, Chinese government attempted to pull the economy from sliding by increasing its investment in the infrastructure sector of the economy. Chinas crude oil imports too dropped by 6.3% in March 2009; however, it surged in month of April. The Ministry of Commerce in China said, “Most exporters have fewer orders in hand”.
Meyn and Kennan argue that the US economic crisis has also impacted the countries in Europe. The European Union’s (EU) biggest economies that include the UK, Germany, and France had substantial reduction in their imports in October 2008 when compared with imports of October 2007.
In September 2008, Mark Landler writes in the New York Times, "The U.S. Financial Crisis Is Spreading to Europe". Governments in Germany and the UK became active and bailed out five banks to prevent the economic crisis taking serious dimensions. The loss of confidence in Europe occurred due to failure of the largest investment banker in the US, the Lehman Brothers, coupled with the decision of the US Federal not to rescue them.
Lehmans failure triggered the European Crisis in large scale. Netherlands, Belgium and Luxembourg made a joint effort to save Fortis bank at the cost of $16.2 billion. Many large European banks had invested significantly in mortgage securities issued by the US financial institutions including Lehman brothers. So the US economic crisis, in all circumstances, was bound to percolate across most European economies. Ireland too attributed its economic crisis to the failure of Lehman Brothers. During the period, many bank failures occurred in the Europe as suddenly they were short of funds to pay those who deposited monies with them (Landler).
Robert Shelburne argues that the US crisis hampered the world trade significantly in the third quarter of 2008 through the second quarter of 2009. It is not that only developed European economies were affected; between 2008 and 2009, GDP of the several emerging European countries declined sharply.
The following table depicts how their economies fared in 2009 compared to 2008.
Source: (p 20).
All this has happened because most of the countries’ economies are heavily dependent on the US economy. In the era of globalization where countries are interlinked exchanging their goods and services with each other, if one part of the world is affected due to crisis, especially when it is not only the largest economy but also the largest importer of goods then other parts or countries of the world are sure to have its negative effect due to fall in demand of the importing country putting their economies too in a downward trend.
Batson, Andrew. Chinas Exports Fall, Threatening Recovery. Web. 2009. 8
May 2014 Gokay, Bulent. The 2008 World Economic Crisis: Global Shifts and Faultlines. Web. 2009. 8
May 2014 Landler, Mark. The U.S. Financial Crisis Is Spreading to Europe. Web. 2009. 8
May 2014 Marcelis, David. Economists React: China’s Growth Is Slowing, Not Slumping. Web. 2008. 8
May 2014. Meyn, Mareike & Kennan, Jane. The implications of the global financial crisis for developing
countries’ export volumes and values. Web. 2009. 8 May 2014.
Rampell, Catherine. Why the World Cares About the U.S. Crisis. Web. 2009. 8
May 2014. Shelburne, Robert. The Global Financial Crisis And Its Impact On Trade: The World And The
European Emerging Economies. United Nations. Web. 2010. 2009. 8 May 2014. Read More
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