Globalised Economics

Terminology Explained: RECESSION

A Recession is described as a decline in GDP output across 2 consecutive quarters in a year. Made up Example: over Q2 and Q3 the economy of Cuba shrank by 0.6%.

The term Recession is fairly loaded as it infers people are getting poorer compared to previous years when in actuality the decrease could be minimal and not seen in everyday life. One of the most recent recessions was in 2008 caused by the housing bubble. If in rare circumstances, a recession is particularly bad it's called a depression. The most notable example of a depression was in 1929 and was called the Great Depression.

Context: in 2023 a lot of advanced economies like the U.S. Euro Area and parts of Asia are expected to go into recession. There is even speculation about the global economy going into recession but this is only speculation at the moment. Causes for this are the Russia - Ukraine war, uncertainty around food security and energy material (gas and oil) driving up wholesale prices and a post COVID up tick in demand for products and services. Combined we have the situation that we're in at the moment but as Europe comes off Russian oil and markets are calmed prices will decrease, hang tight out there people things will get better!

What terminology would you like to explain next?

Whose ready for our Norway Economy Case Study coming very soon!!!

In the meantime, what is your favourite thing about the Norwegian Economy?

Q&A in the comments:

What part of Economics confuses you most? Comment below and let me know

*Case Study*

Welcome to Canada!
The land of ice hockey, politeness, and the 9th largest economy in the world.

The Canadian economy has got strategic pros and cons. Firstly it is direct neighbours to and the largest trading partner of the United States of America (more to come on them soon) so naturally has more opportunities than say Egypt all the way over in Africa. Secondly it is a commonwealth country so takes a lot of its governance from it's parent country the United Kingdom across the Atlantic. On the flip side the geography of Canada can be described as questionable… with a majority of its land mass being cold, desolate and underdeveloped. The majority of it's densely populated cities are based on the U.S border and spread horizontally from the Atlantic coast to the Pacific. To make up for its disproportionate population Canada has become one of the best places for migrants and students to come and learn new skills or get experience in their field that they may not have the chance to in their home country.

Immigration and Skilled Migration:
No country is immune from immigration and i will be discussing the economic impacts -only- of migration for Canada (so calm down keyboard warriors) with that in mind lets jump in. Canada has one of the highest percentages of foreign born residents at 21.9%, the Canadian government offers a diverse range of visas for internationals, from student visas to migrant visas, this is very prosperous for an economy as it almost guarantees growth as no student is going to turn up in a country with no money or a place to live. They're going to have money to rent a home, a food budget, and funds to make a social life after work hours (maybe except grad students! ;) ). The majority of wealth from international stuents comes from wealthy parents or a well off family meaning Canada is getting a direct line of cash from another country free of charge in the form of a student or migrant. It can't help as well if the country to emigrate to has one of the most relaxed attitudes towards migrants, a very enticing student visa programme, outstanding natural beauty, established industries, and world class education systems. In the same way as tourists, students are a valuable export using it's built up industries and education centres Canada gets direct investment to the local economy from the funds that didn't originate there and the home nation the migrant/student is from (lets say Egypt for this example) gets a better educated or skilled citizen in return for the rest of their career upon completing their time in Canada, it's a win win and Canada has become the hot spot for work experience and education. In a nutshell what I have just described is skilled migration played out on a very successful scale. Skilled migration however does have some drawbacks, specifically the cost of living increase in the nation all students flock to. Supply and Demand will tell you that when demand outpaces supply the cost of goods and services will go up now apply that to students and you'll see one of Canada's main probelms. With the amount of tourists, students and migrants coming to Canada, the nation's real estate market has seen huge appreciation making it very difficult for a Canadian citizen to own a home as the renting market is so big in Canada. Vancover is a major Canadian city, with its location to the west coast, proximity to the U.S. and reputation of safety and prosperity Vancover is one of the most expensive cities to live in one the planet... similar to London owning a property here can be very profitable to landlords and international students from Japan, South Korea, Vietnam and others in the Pacific see Vancover as an enticing destination to explore opportunties and get a taste of 'western life' (for lack of a better phrase). This is where it turns into a social argument as many Canadian born citizens are being locked out of their own cities with the property prices increasing by 10x the average so I will leave it up to you dear reader to decide on whether or not this is a good thing.

Mining and Oil:
Out in the wilderness of the Canadian forests hold an abudance of mining and oil deposits which have been an integral factor to Canada's success. The government has introduced taxes on the mining facitities to ensure some of that resource wealth can be seen by the average Canadian which is very responsible as with every resource that can be mined that deposit is non renewable once extracted and therefore becomes worthless once used. These taxes are placed into a pot that Canada can use to better itself when the oil and mining season eventually dries up. Like with most resource rich nations, the good times only last so as long as there is the resource available in this case oil, the Canadian government is all too aware of this and are currently investing into new greener methods to use their equipment in order to save money in the long run which links back to why they're turing to inrernational students to help them achieve that cause you know, strength in numbers and all that. Canada is also very chummy with a very influential trading partner to the south which is a great segway to Canada's geography and its significance.

Georgraphy and Positioning:
Canada has in many ways got the best body guard to ever exst in the form of the United States. The pair have a very strong trading relationship and are each other's most popular trading partner. The economic, industrial and military power of the U.S. means Canada is always going be safe when sh*t hits the fan, the two economies have developed in synonomous ways and what happens in the U.S. can usually bee seen in Canada all be it on a much smaller scale. What's more is that the U.S. the most consumer driven market in the world shares a land border with Canada making access to foreign trade very easy for the Canadian economy. Americans often associate Canada as their little brother due how similar the two nations are. Being a member of NATO means that Canada does not need to focus its economy on defense spending as the U.S. will beat up any bully that tries to invade, real high school level stuff i'm sure. However as with the American association, international players have come to see Canada as solely reliant on the U.S. to exist which isn't neccessarily true, as previously mentioned, the friendly Canadians have access to the Pacific and Atlantic giving it expanded trading networks with other foreign nations, it is the second largest nation in terms of land mass so plenty of space to work with and a reputation of being welcoming thus encouraging development through foreigners whats not to love?
Well as it happens a couple of things, geographically it can be argued that the economy has been hindered by its location. Although I mentioned earlier that with resources being away from tourists hot spots allows for the cities to thrive without the knowing the impact the mining industry is having on the environment will by contrast being away from major cities means that mining and oil extraction is more expensive. To get extracted oil to the consumers involves a lot of legwork over treacherous conditions of ice, snow, wolves, bears and other conditions that just want to make life difficult for you, (aint mother nature lovely eh.). The geographical differences don't stop there however, with its shared culture and open borders the seperation in salaries between the U.S. and Canada is growing, now arguably this is down to Americans working harder (according to each nation's department for labor i might add) with U.S. workers clocking in 1,791 hours annually compared to the Canada's 1,685 hours. The gap in output has been argued by the difference in the quaility of its sectors Canada doesn't have a version of silicon valley for example but the main reason is that the U.S. just has more money to play with and invest into sectors than Canada so therefore can more easiy see the return on investment than Canada. It is incredibly difficult to talk about the Canadian economy without talking about the U.S. as the similarities are so big but Canada has got some clear USP's that make it stand out on the world stage even if it is sometimes overshadowed by its neighbour to the south.

Ranking:
Okay we now go onto the ranking, the most savvy aamongst you will be seeing that I'm covering the G7 economies first and that the economy of the U.S. is all thats left for that catergory well due to sheer size and uniqueness of the U.S. economy I feel in order to do it justice I will have to include the case study in two parts. I will eventually come round to this but with my special relationship series just started I hope that will scratch your American economical itch for now.

Talking about Canada however the country has a GDP of $1.9 Trillion dollars making it the 9th largest economy and getting a 7/10

GDP per capita is actually quite high it's the second highest in G7 and comes in at $52,000 for its 38 million population, with a little bit of work it could rub shoulders with true per capita elites, like Norway, Switzerland and Singapore but for now gets a 8/10.

As with most advanced economies over the past 10 years growth hasn't been too great, its still growing and is doing better than most of Europe at 1.71% annually and gets a 4/10.

Stability and Confidence is great, Canada is one of the safest and secure nations on the planet has a strong currency, stable democracy and is arguably better at diplomacy than the U.S. this means it gets a 9/10.

Industry is more mixed, with a booming real estate market, manufacturing industry and wholesale trade market The Canadian economy does a lot and what it does, it does extremely well but there just aren't a lot of internationally recognisable industries outside mining, agriculture, student exports and visa allocation. The country is building up a strong service industry but that is still on the rise as of this post so can only get 7/10.

All in all this gives the Canadian Economy a 7/10. Not bad Canada, keep up the great work!

Let me know any countries you would like me to analyse in the comments below!

C.

The Economics of the "Special Relationship". Does it benefit both nations economically?

Part 1: 1945-1969.

The Special Relationship is a term coined by British policy makers during second world war to describe the bond between American and British forces in the downfall of N**i Germany. Since its inception policy makers on both sides of the atlantic still believe there are elements of the unique bond the United Kingdom and the United States of America share. Arguably there are no two closer people in the eyes of the world than the President of the United States and the Prime Minister of Great Britain examples can be seen with who is in the White House and who is in 10 Downing Street at the same time. Clear embodyments of the special relationship come in the form of:
Winston Churchill

The Economics of Hosting the World Cup:

With the Qatar 2022 World Cup in full swing I thought it would be interesting to take a look at how a country's economy is impacted by the World Cup, is it economically beneficial to the host country? finally how all the investment is used after the World Cup is gone.

The FIFA 2022 tournament came after the controversial decision in 2010 when FIFA awarded the nation of Qatar, a population of just under 2 million people the rights to host the international football tournamant finals. Quick disclaimer, this post will not focus on FIFA, it's doddgy repuation, and any back room deals as honestly they could be their own post, which I may or may not be working on ;) (keep an eye out for 'the Economics of FIFA' sometime in the future).

For better or worse the FIFA World Cup brings big bucks to the host nation and whether you agree with how they got the nomination there's no denying its impact. Due to the questionable means of how some previous countries such as Russia, South Africa and Brazil got their nominations FIFA has all the leverage to negotiate exemptions for the organiation such as tax breaks and loopholes to ensure the company stays profitable.

On the surface you'd be forgiven for assuming that the host country makes a lot of revenue from the World Cup such as tourism, hospitality, infrastructure investment, the building of stadiums amongst others, but this isn't neccessarily the case. In 2010 South Africa spent $3.5 Billion to host the world cup, this figure is dwarfed by Qatar who is estimated to have spent a whooping $220 Billion in hosting the tournament. To understand this collosal sum we need to look at the specific revenue streams and the costs required in hosting football.

Firstly Hospitality, Accomodation and Ticketing - All money floating about in this sector is 100% owned by a subsidiary of FIFA and therefore is not shared with the host country at all. All payments go through FIFA, so a customer pays FIFA for a ticket and a place to stay. A small proportion goes to the hotels from fans staying in local instituions but this is overshadowed by the cost and logistics in preparing for a influx of temporary guests plus FIFA Execs demand free accomodation in exchange for giving them access to host their tournament, how cheeky of them right? During the 2010 World Cup there were multiple reports of complaints from FIFA officals that the rooms didn't meet their individual specs and paying guests were forced into cheaper rooms to make way for the FIFA representatives who got premium suites for free or at a heavy discount.

In terms of Broacasting the games - This is a major profit machine for FIFA and accounts for the main source of income for the organisation. With football's global reach FIFA -sells- the rights to broadcast the World Cup to nations for profit and this applies to the host nation themselves. 55% of FIFA's income came from Broadcast Deals during the Russia 2018 World Cup, For context that is $4.6 Billion.
It's a similar story with Sponsorships, Marketing and Licensing rights, during the Russia World Cup this stream accounted for 35% of all FIFA revenue so again is too valuable and thus is not shared with the host nation.

The boost to the local economy from tourism is a major reason given by FIFA as to why nations should want to host the World Cup. However the increase in tourism is minimal and only typically lasts for the duration of the tournament with pre tournament levels of tourism being seen within months of the games finishing. During the 1998 World Cup in France, Tourism actually dipped during the Tournament due to the increase in traffic, noise, prices and other inflationary pressures that normal tourists just don't want to experience.

The main draw to hosting the World Cup is the socio economic impact with new Jobs, Infrastucture and stadiums being built to accomodate for the increased demand the tournament brings. Success can be seen in the 2010 South Afica World Cup, roads were repaired, a domestic public transport system was introduced and host cities had renovations to account for the standard of which World Cup fans expect from home nations. When the World Cup left the Country, established transport links were created, an uptick in employment was seen and a the economy had a significant boost for years after.

Over the years, the cost to host the World Cup has increased at a steady rate with each country wanting to be one to host the best World Cup. FIFA itself spends nothing hosting and has all the leverage due to the process to host the World Cup be extremely competitve, In order to make a country 'attractive' to host, bidders will often offer tax breaks and loop holes to FIFA to be considered my favourable which is arguably what happened with Qatar, Russia and Brazil to name a few. The length to which some countries will go to host the tournament is pretty radical with some hosts taking on unsustainable amounts of debt just to get consideration and thats before taking into account the cost of building the facilites and transport if not already established in some developing countries. It is typically the tax payer of each nation which ends up settling the bill for the tournament which raises the question of if it is really in a country's best interest to host the World Cup in the long term. Some stadiums fall into disrepair or no longer serve the orginal function and become storage facility as with a stadium in Brazil after the 2014 World Cup. Investment in a country for the FIFA World Cup can be seen like an Instragram filter, all perfect on the surface, but if you examine a bit deeper you seen the cracks and flaws.

The representative of Football, FIFA does also not help this view as they demand to be treated like kings whilst the tournament is happening at the expense of the country's citizens and expect, disocunts in resturants, tax breaks from govenments and assurances from the hosts that the country will conform to their practice so they can carry on the lifestyle to which they are acustomed to.

In conclusion then is the World Cup, really worth hosting and do the people really see any benefit to their standard of living?

No... Well not really.

It is true that in some cases the World Cup has left a positive impact in the development of infrastructure projects and a temporary boost in tourism but the demands that FIFA makes and the 'bribes' countries are offering to FIFA in exchange to host means that if a country were to object to FIFA's conduct they would almost certainly never be given the chance to host unless it benefited the organisation in some way. This is why many developing countries or countries with high inequality end up hosting the World Cup as nations like the U.S. already have established highquality infrastructure and world class stadiums that they do not need the excuse in hosting the World Cup to renovate them. FIFA's tax break pre requisite is also not worth risking as Western citizens already have a fairly high standard of living compared to the developing world so have a lot more to lose in hosting than emerging economies such as unfinished infrastructure projects and allocated resources that could be best utlilised elsewhere.

In a nutshell hosting the World Cup is a High Cost, High loss gamble and it's only going to get worse.

C.

Are you excited to see the Globalised Economics National Leaderboard? Well here it is. out of the 5 countries so far we have:

🥇Germany 🇩🇪 7.6

🥈United Kingdom 🇬🇧 7.4

🥉France 🇫🇷 / Japan 🇯🇵 7.2

🎖Italy 🇮🇹 6.2

Keep with Globalised Economics for updated posts in the future!

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*Case Study*

Welcome to Japan!
The land of Manga, Sumo Wrestling, and the 3rd largest economy in the world.

Japan was at one point predicted to challenge the US for the largest economy in the world in the late 20th century however after experiencing 'the lost decade' in the 1990s Japan has acquired a significant amount of debt and almost a quarter into the 21st century growth is notoriously poor. You might then be thinking, but how has Japan managed to stay in the bronze medal position of global economies with all this negativity? well lets look at that.

History:
Being the last country to surrender at the end of World War 2, Japan had the horrifying experience of being the battleground for the use of the world's first nuclear bomb. This obliterated the cities of Nagasaki and Hiroshima leaving behind only rubble and death. The US occupied Japan for 6 years and helped rebuild it with the Marshal Plan similar to Germany and Italy. This economic boom carried the Japenese Citizens all the way to the 1990s with consistent GDP growth and a growing quality of life, at the time it was known as the workshop of the world being able to undercut other nations in terms of cost per output, it had emerging industries in technology and manufacturing and was set to be king of the world but then it all came to a stop.

Slowdown in Growth and Rise in Debt:
Japan's GDP growth was jaw dropping in the 1990s but hasn't really grown since then still maintaining it's same $4.9trillion dollar valuation it had in the 90s, this is simillar to running a marathan and using up all your steam in the first quarter that you're barely still moving your feet by the finish line. there are a couple of reasons for this stagnation.
The birth rate in Japan is very low with a woman having 1.2 babies on average which comparitievely puts it similar to Russia which has other notable problems with its population at the moment. The birth rate compared with a ever growing population means that there are more people getting older and relying on pensions and less people being born able to eventually support those pensioners, Japan currently has the oldest population on the planet! Japan is having to invest more public and private money into health care to support its ageing population. This also has a correlation to the workforce, to avoid having to rely on a pension Japanese workers will be working to a much older age thereby limiting opportunities for the younger and also being less productive, cause lets face it, the older you get the slower you get. This means that Japanese economy is also slowing and is having it's industries overtaken by price and output by the likes of South Korea or China which means the Japanese economy is stuck between a rock and a hard place, do they try and fix their aging population or try to remain competitive in industry.
The government chose to lower interest rates in an effort to get its citizens to spend money in the economy thereby boosting its power on the world stage again. The problem was the Japanese citizens ended up doing this and then some, lower interest rates mean you can borrow at a much cheaper rate than you could normally which raises the debt burdon on famillies and increases the inflation rate. This is potentially dangerous for an economy because if people are borrowing beyond their means then if interest rates were to go up families would not be able to sustain their payments due to not having a cash bubble to fallback on as they are leveraged up with debt. The current interest rate in Japan for the central bank is negative, which means the bank will have to pay organisations to encourage them to take out loans which is unheard of in an advanced economy (this doesn't apply to the average citizen due to mark up values). In essence the prices in Japanese goods and services is not rising and is actually declining in price which is horrifying news if youre the central bank because why would your citizens pay for a new car when the price tag will be cheaper for the same car in 6 months time. Now apply that theory to every industry and you'll begin to see why Japan is facing a huge problem. What's more is there's little the Japanese government can do about. Trying to fix the issue the government took on an absurd amount of debt to fund projects and social programmes in order to stimulate it's economy, when that didn't work as well as they'd hoped the government found it hard to borrow more money due to the debt to gdp ratio (a ratio used to determine how much cash a economy has - similar to a balance sheet) it had already gained which was more than 2.5x it's own nominal GDP value (the value of an economy not taking into account debts). Because of Japan's leveraged economy the interest they get back on government bonds in the international scene is small. To give it some credit the government has increased its business and inflation has returned to the normal 2-3% target but it still has numerous problems to take it to the gold medal position in global economies

The Future:
So to summarise, high debt to gdp, a low birth, rate, an aging, population and businesses being muscled in on by foreign competitors means Japan has got its work cut out, but despite this it is still worthy of praise. An American economist, Simon Kuznets states that Japan is an economic anomolie and it was astonishing to see how well it was doing despite tradtional metrics.
Japan has sparse natural resources and is a truly unique case study to look at prosperity, it's argued in some cases that Japan should be seen as a future model of how to conduct business. With it's reliance on trade and imports Japan needs to sustain itself through industry and that is what Japan does exceedingly well, being forced to innovate Japan has a focus on new solutions to existing problems Japan is one of the tech capitals of the world, has a illustrious history, devine culture and unique heritige, all of which are industries and all are exportable. Japan's USP to stick to it's industry in a well respected G7 Economy group as well as being in the top 3 economies of the world means Japan isn't going anywhere anytime soon.

Ranking:
Now I know I said I would wait until doing 10 to do a proper list but having to refer back to previous' nation's scores is getting repitive so I will be creating the list after this post and updating it after every 5 case studies.

But for Japan; it has a GDP of $4.9trillion dollars it is the 3rd largest economy in the world and a stable democracy, given that the only 2 nations above it have just under $40trillion dollars of GDP value between them and Japan only has $5trillion means it can only get a 9/10

GDP per capita is also quite strong with a total of just under $40,000 the country is among its other advanced economies in this metric meaning it gets an 8/10

Growth has been infamously bad, for its position in the world Japan's growth rate has been averaged over the past 10 years of 0.48% which isn't negative but nothing to write home about, meaning it can only get a 1/10.

Stability and Confidence is more positve, Japan is stable democracy with a good and unique currency it's credit rating is coming into question with the amount of debt its amassed but still overall a really safe place to put your money, it gets an 8/10.

Industry is exeptional, with its sparse natural resources and reliance on trade Japan has had to balance the books by delivering great products and services. It makes everything from great cars, to great video games, foods, technology and has a strong finacial services sector and can only get a 10/10.

This means Japan's average score is 7.2 out of 10.

Let me know your thoughts on the Japanese economy is it over leveraged or does it still have potential to make a mark in the world?

C