“We have to remember we’re in a global economy. The purpose of fiscal stimulus is not simply to sustain activity in our national economies, but to help the global economy as well, and that’s why it’s so critical that measures in those packages avoid anything that smacks of protectionism.” – Stephen Harper
We live in a world where it is becoming easier and easier to communicate and do business with people all over the world. The rise of the internet; ergo, improved access to international markets, is a major driver for the ease of which business people can ply their trades globally. Along with the increase in internet access, comes the concepts of borderless trading and global communication.
Consequently, the global economy has grown out of this ability to work all over the world without actually living in the country where our clients reside.
For example, I live in one country, and I run a business which has several major global clients, none of which are in my country of origin. How does this work? Well, my only requirements for doing business are a laptop and an internet connection. I communicate with my clients via email, VOIP (Voice Over IP), and various messaging services.
What is the global economy?
Before we look at the impact of the global economy on the world’s real estate markets, especially, the Canadian real estate market, let’s have a look at the definition of an economy is, as well as how each individual country’s economy influences the global economy.
In a nutshell, “the word economy comes from the Greek words for ‘household’ and ‘manage.’ In short, the economy simply means managing your household. Through the economy, goods and services in a government or region are produced in a way to produce wealth.”
Furthermore, the global economy is the “world-wide economic activity between various countries that are considered intertwined and thus can affect other countries negatively or positively.“
In other words, each country has an economy and all of the financial activities that take place within the state influence the success of the national economy. When each individual country’s economy is added together, we end up with what is known as the global economy.
The influence of the world-wide economy on the Canadian real estate market
From the definitions of what an economy, and more specifically a global economy are, we can infer that individual geopolitical and socio-economic events affect the world economy and the global financial markets as a whole.
If the world is at peace and most people are employed, the economic activity will be healthy. In other words, there is a lot of liquid cash floating around. Consequently, the real estate market will be healthy with houses being bought and sold. There might even be a shortage of housing around the major business districts in Canadian cities. Housing shortages will drive the prices up; however, it will also lead to increased activity in the construction industry as more houses are built. In other words, increased demand leads to an increase in employment opportunities both in the construction sector and in sectors that provide the raw materials which are used in housing construction projects.
On the other hand, if the world is in turmoil, then the economic activity will be subdued which, in turn, will reduce cash liquidity, and therefore, the ability to purchase goods and services.