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- 1. Go Global ! Global Economic Environment : Macroeconomic Performance & Business Performance By Stephen Ong Edinburgh Napier University Business School chong@mail.tarc.edu.my Visiting Professor, College of Management, Shenzhen University 4 August 2012
- 2. Learning Objectives To analyse the key macroeconomic indicators To explain how the business cycle works To critically assess the relationship between the business cycle and company performance
- 3. Agenda 1. Business Cycles & Business Performance 2. Unemployment 3. Inflation
- 5. 1.1 Components of the Economy 1.Firms 2.Households 3.Government 4.Banking sector 5.External (overseas) sector
- 6. The Circular Flow Model
- 7. 1. The Business Cycle
- 8. 1.1 Long term Business Cycle
- 9. 1.2 Causes of Business Cycles • Shocks and price stickiness • Supply and productivity shocks • Monetary shocks • Financial bursts and bubbles • Unexpected political events • Common link • Unexpected changes in spending
- 10. 1.3 Impact of Policy
- 11. 1.4 Effects on Business Performance 1.Profitability 2.Share prices and Dividend Policies 3.Investment and Return on Capital Employed 4.Cash Flow
- 12. Key Business Performance Indicators & Stage of Business Cycle : Recession Indicator (Rise/Fall) Profits Share prices Dividends Investment Return on Capital Cash flow Sales revenue Costs Bankruptcies
- 13. Key Business Performance Indicators & Stage of Business Cycle : BOOM Indicator (Rise/Fall) Profits Share prices Dividends Investment Return on Capital Cash flow Sales revenue Costs Bankruptcies
- 14. 2. Unemployment • Twin problems of the business cycle • Unemployment • Inflation • Measurement of unemployment • Who’s in the labour force • Problems with the unemployment rate • Part-time employment • Discouraged workers Unemployed Unemployment Rate = Labour Force x 100
- 15. 2.1 Unemployment 2007 data Under 16 And/or Institutionalized (71.8 Million) Not in Labor Force (78.7 Million) Total Population (303.6 Million) Employed Labor (146.0 Million) Force (153.1 Million) Unemployed (7.1 Million) Source: Bureau of Labor Statistics
- 16. 2.1.1 USA Labour force 2007
- 17. 2.2 Unemployment • Types of unemployment • Frictional • Structural • Cyclical • Full employment defined • No cyclical unemployment • Natural rate of unemployment • Full employment rate
- 18. 2.3 Unemployment • Natural rate of unemployment • 1980’s 6% • Today 4-5% • Aging labour force • Temp agencies and the internet • New welfare laws and work requirements • Prison population has doubled
- 19. 2.4 Cost of Unemployment • Foregone output • Potential output • GDP gap • (Actual output – potential output) • Okun’s Law • Each 1% above NRU creates negative 2% output gap
- 20. 2.4.1 Costs of Unemployment
- 21. 2.4.2 Okun's Law
- 22. 12,000 12,000 The GDP Gap 11,000 11,000 The Unemployment Rate 10,000 10,000 Potential GDP 9,000 9,000 8,000 8,000 7,000 7,000 Actual GDP 6,000 GDP gap 6,000 (positive) 1991 1991 1993 1993 1995 1995 19971997 1999 2001 1999 2003 2001 2005 2003 2005 GDP (billions of 1996 dollars) 5,000 5,000 1985 1985 1987 1987 1989 1989 1991 1993 1995 1997 1999 2001 20 1991 1993 1995 1997 1999 2001 2003 2.5 Unemployment GDP gap (negative) Source: Congressional Budget Office & Bureau of Economic Analysis
- 23. 2.6 Unemployment • Unequal burdens • Occupation • Age • Race and ethnicity • Gender • Education • Duration • Noneconomic costs
- 24. 2.7 Unemployment Rate Unemployment Rates in Five Industrial Nations,1995-2005 Source: Bureau of Labor Statistics
- 25. 2.7.1 Unemployment & Labour Markets
- 26. 2.7.2 Vacancy & Unemployment Rates
- 27. 2.7.3 Unemployment by Demographics
- 28. 2.7.4 Duration of Unemployment
- 30. 2.7.6 USA vs EU
- 31. 3. Inflation • Rise in general level of prices • Consumer price index (CPI) • Market basket • 300 goods and services • Typical urban consumer • 2 year updates Price of the Most Recent Market Basket in the Particular Year CPI = Price estimate of the Market x 100 Basket in 1982-1984
- 32. 3.01 Historic UK Inflation
- 33. 3.02 USA CPI
- 34. 3.03 Recent CPI
- 36. 3.1 Inflation 2000 Annual Inflation Rates in the United States, 1960-2007 1990 1980 1970 Source: Bureau of Labor Statistics
- 37. 3.2 Inflation Inflation Rates in Five Industrial Nations, 1995-2005 Source: Bureau of Labor Statistics
- 38. 3.3 Inflation • Types of Inflation • Demand pull • Cost-push • Redistributive Effects • Nominal and real income • Growth in nominal income vs. inflation rate • Anticipated vs. unanticipated inflation
- 39. 3.4 Inflation • Who is hurt by inflation? • Fixed-income receivers • Savers • Creditors • Who is unaffected or not hurt by inflation? • Flexible-income receivers • Cost-of-living adjustments (COLAs) • Debtors
- 40. 3.5 Anticipated Inflation • Nominal Interest Rate • Real Interest Rate • Inflation Premium 6% 11% = + Inflation Premium 5% Nominal Real Interest Interest Rate Rate
- 41. 3.6 Inflation & Economic Growth
- 42. 3.7 Other Inflation Issues •Deflation •Mixed effects •Arbitrariness •Cost-push inflation and real •Demand-pull inflation and real •Hyperinflation
- 45. 3.7.3 Upward Spiral of Prices & Wages
- 46. 3.7.4 Phillips Curve: Inflation vs Unemployment
- 47. 3.7.5 Phillip Curve Shifts
- 48. 3.7.6 Unemployment & NAIRU
- 49. 3.7.7 Costs of Disinflation
- 50. 3.7.8 USA Inflation & Unemployment
- 51. Conclusion “High unemployment is a central flaw in modern capitalism... Unemployment must sometimes be kept above its socially optimal level to ensure price stability, and the tension between price stability and low unemployment is one of the cruelest dilemmas of modern society.” Paul Samuelson
- 52. Core Reading Juleff, L, Chalmers, A.. and Harte, P. (2008) Business Economics in a Global Environment, Napier University Edinburgh Daniels, J.D., Radebaugh, L.H. and Sullivan, D.P. (2012) International Business: Environments and Operations. 14th edition, Pearson Samuelson, P.A. and Nordhaus, W. D. (2010)“Economics” Irwin/McGraw-Hill, 19th Edition Porter, Michael E. (2004)“Competitive Strategy – Techniques for Analyzing Industries and Competitors” Free Press
- 53. Questions?
Notas do Editor
- The Learning Objectives for Chapter 1 are To define globalization and international business and show how they affect each other To understand why companies engage in international business and why international business growth has accelerated To discuss globalization’s future and the major criticisms of globalization To become familiar with different ways in which a company can accomplish its global objectives To apply social science disciplines to understanding the differences between international and domestic business