Interconnectivity of Economies

January 4, 2009 · Filed Under Economics · Comment 

Given the turmoil that we have experienced in the world financial markets in 2008 it has proven beyond a doubt that we are all connected more than we ever thought. In 2006 and even 2007 there was the theory of decoupling of the various economies. For us in Australia it was said that we were more connected to China than Europe or the USA. When the first rumblings started to happen in the US economy in late 2007 there were many pronouncements that this would have no impact on Australia.

But now that the market is down 45% from the levels of late 2007 the theory is on the scrapheap. The turmoil that started in the US housing markets has extended to Europe, China, Australia and the rest of the world.

Over the last decade we have seen globalisation gather steam in business. Businesses of all sizes have improved their supply chains. Orders made by clients in Australia can effect production in China within hours.

The Australian economy is very reliant on the mining industry and given the downturn in demand in US and Europe, China cut it’s production immediately which has had a significant impact on the producers in Australia.

The lesson we have learnt is that we are all very closely connected. Australia is not an isolated island. As a business we need to keep aware of the developments around the world. What are businesses doing in your industry around the world? What does the development in the economies of world mean for your business?

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