Do All Countries Undergo The Same Economic Cycle?
The traditional business cycle can be mapped out on a sine curve and tracked in terms of GDP growth. However global events can cause economies to undergo simultaneous shocks. This video explores how and why…

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We have a question from a community member asking whether different countries will undergo the same economic cycles and at the same time? The example for their question is the recession that was experienced by economies all over the world during the Corona virus shutdowns.

This is a great question, and there is actually so much we can say and share about this topic, but I’ll try to just cover it as broadly as I can. As you know, the traditional business cycle can be mapped out on a sine curve. The traditional cycle is tracked in terms of GDP growth, with growth either accelerating or expanding or decelerating or contracting.

So, the traditional business cycle has a peak, which turns into a contraction, which might or might not be followed by a recession, then a trough, then from there you have early recovery and then you have expansion and then you have another peak and then the whole process starts all over again.

Now, this cycle, can occur on both a country as well as the global level, and in other cases even on a more continent or regional level. The one thing that has caused these cycles to be more global in recent years has been the massive amount of globalisation that the world has seen, which has increased bilateral trade immensely and of course technology has removed plenty of the more traditional barriers that hindered easier trade between countries and continents. That globalisations has meant that bilateral trade has brought countries a lot closer to their trade partners, and thus more dependent on their trade partners, which means that a country that goes through any one of those cycles can have an impact on it’s biggest trade partners as a result.

There are also other things that have caused more globally based cycles in recent decades. Some of them has been massive financial shocks like the Global Financial Crisis back in 2007 to 2009 and then right now in 2020 the Coronavirus Pandemic. The massive fallout from the se type of shocks have caused economies around the globe to undergo simultaneous shocks to their economies and have to some extent seen more synchronicity in their cycles.

Other factors that can and have affected this synchronicity is things like trade deals, and of course as seen in 2018 trade wars as well. Other things that can throw certain individual countries out of sync so to speak is wars in their countries or neighbouring countries. And one of the other biggest factors that influence the whole global economy is when the biggest or most important economic powerhouses of the globe go through their own individual economic cycles, think of the US and China, when these two go through economic cycles it will have a massive ripple effect across the globe.

Especially on the US side, because depending on where they are in their business cycle, and how that matches up to the rest of the world will have an impact on the Dollar, and whenever the Dollar undergoes massive cyclical changes that impacts the entire global economy once more as the Dollar is the world’s reserve currency, think of all the dollar-denominated debt around the world, when the Dollar strengthens a lot that’s bad for emerging market countries that borrow in Dollars, and vice versa when it’s moving lower that’s good for those economies.

So, the every country will, depending on the cycle of their growth and inflation, and by extension monetary and fiscal policy will experience their own individual economic or business cycles, but big shocks like we’ve seen recently can see a more global synchronised move across various countries as well.

So, it really comes down to the context of each individual and of course the bigger picture view of what’s happening to the biggest players in the global economy, and how their cycles affect their currencies and thus trade with their partners.

So, hope that helps with your question, any others please don’t hesitate to let us know.

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