How Political Instability Affects the Global Economy 👑🌎

Hi, I’m Jane! I’m a political analyst and today, we’re going to talk about how political instability affects the global economy. Political instability can be defined as a situation where the government of a country is unable to maintain law and order, enforce rules and regulations, or make decisions in the interest of the citizens. The impact of political instability can be detrimental to the global economy in various ways. In this blog post, we’ll explore some of the key ways in which political instability affects the global economy with examples to help understand the topic better.

Trade and Investment 🤝💰

Political instability affects the global economy through trade and investment. One of the significant ways that political instability can impact the global economy is through its effect on trade relations. For example, sanctions placed on a country by another country due to political tensions can lead to a reduction in trade flows, which in turn leads to a decrease in economic growth.

Similarly, countries experiencing political instability may also be less attractive to foreign investors as they tend to avoid countries with uncertain economic policies. This can discourage investments, leading to a slowdown in economic growth. For instance, the political unrest in Turkey affected foreign investors’ confidence, causing a significant drop of foreign direct investment by 36% from 2016 to 2017.

Inflation and Currency Depreciation 💱💸

Political instability can also lead to inflation and currency depreciation, which can reduce purchasing power and affect living standards. For example, when political leaders mismanage public funds, this impacts the economy’s stability, leading to high inflation rates. High inflation rates lead to rising prices in the economy, which can result in a currency depreciation. When the currency deteriorates, the country’s imports become more expensive, leading to a surge in prices, including basic commodities such as food and fuel.

An example of a country that experienced high inflation rates due to political instability is Venezuela. Venezuela’s political instability led to a rapid fall in oil prices, one of its primary income sources. The government was unable to manage its finances, leading to extremely high inflation rates.

Public Debts and Fiscal Deficits 💵🧐

Political instability can also create significant public debts and fiscal deficits, leaving the government with limited options to finance debt and fiscal deficits, resulting in economic instability. For example, governments experiencing a high level of political turbulence may opt to increase their public debts to sustain their operations. This creates a vicious cycle, and the governments are eventually unable to repay the debts.

One country that experienced high public debts and fiscal deficits from political instability is Greece. Greece experienced political instability due to the country’s high level of debt and budget deficits, leading to a protest and finally resulting in Greece’s default.

Conclusion 🤝💸

Political instability can have significant negative impacts on the global economy. In this blog post, we have explored how political instability affects trade, inflation, currency depreciation, and public debts and fiscal deficits. When there’s political unrest and turbulence, the economy tends to suffer. And as we’ve seen from the examples, the ripple effect can be significant. As an international community, we must continue to strive to maintain political stability to ensure global economic growth and stability.