BUSINESS ENVIRONMENT

Business Environment

Business Environment

Task 1

Impact of Global Economy Downturn on International Trade

In the great recession period of 2008 and 2009, the global trade plunged by nearly 30 percent of relative to GDP. During the period of recession, huge downfall is seen in the GDP of largest economies like America, China, Japan and Germany. The huge fall in the international trade got the attention and concerns from all over the world. Some of the scholars also say that it is because of the lack of understanding of its causes. The example of procyclical is taken for the explanation that trade is relative to GDP and it is because of the changing composition of global output during recession (Riley 2009).

Another reason behind is that international trade resistance is also defined as a major problem. In this report the impact is focuses on the international trade and some of the part will also see viewing the effect on country level. According to most of the scholars, decrease in international trade is attributable to the decrease in the demand for tradable. 65 percent of the cross country variations in first quarter GDP are because of the demand in durable manufacturers. From the first quarter of 2008 till first quarter of 2009, there is a steep decline in trade. There was decline in the demand for durable and non-durable items which caused 80 percent of the decline in the international trade during recession period (Riley 2009).

Many countries also have to face decline more than the expected value. He increase in the trade resistance independently contributed to the problems faced by the global economy and played a significant role in some countries like Japan and China. The open economies are usually depended upon the trade and export few range of products in some markets. They got effected the most be the trade transmission mechanism. These effects help to understand the effect of economic and social in the global downturn. The recession effect the international trade in various ways which are as follows: Due to the downturn in economy the foreign direct investment also decreases and it is because of the reductions in the access to loan from financial institutions. Some of the countries which are developing have set up their own sovereign wealth funds to offset this kind of situations (Riley 2009).

Export revenues also fall due to the lower demand for commodities and sharp decrease in the demand from emerging markets for manufactured goods. The export prices and export revenues were in a decreasing trend in year 2008 and 2009. The main reason behind the strong growth in the GDP is because of the demand and rise in the price of the primary commodities. These factors also improved the term of trades for developing exporters. The major effect of downturn in global economy is on the export, the export prices are badly cut because of the recession. Another main effect is that instability of prices increases due to which the uncertainty of revenues for commodity ...