Majority of small nations are vulnerable to economic shocks

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economic shocks

There is vast economic disparity among the small nations, while some of the nations such as Switzerland and Singapore boasts of a highly developed economies the majority of the small nations suffer from long term economic volatility.

The nations such as Denmark, Switzerland and Singapore are the beacon of model states. Significantly their quality of living is also higher as 15 of the top 20 places in United Nations Human Development Index are held by them.

The success of these nations have been possible because of innovation. They have devised strategies to combat the various challenges posed by their relative size disadvantages. In this context the innovation can lead these countries ahead on the path of progress. For example innovation has been the key factor in development of countries such as Switzerland and Israel which contributed to absorb shocks and lead to long-term economic success.

However the smallness in size is no guarantee to progress. The challenges for the small nations are also many. They are far behind the bigger countries in internal markets. They also are vulnerable to negative shocks including global fluctuations in commodity prices.

In case of smaller countries such as Greece there has been very restricted growth. Greece has not been very resilient and remain highly vulnerable to pandemic and current geopolitical tensions. The restrictions on economic travel during COVID pandemic had a huge impact on its economy which highly dependent on tourism and shipping business.

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The prosperity of small nations depend on its ability to pragmatic law making and economic decisions to progress. Though the geopolitical tensions have brought their vulnerabilities to the helm they are a learning lessons for the opportunity to learn and grow stronger.

Major challenges of the small nations

COVID hit the economies of smaller nations hard

The output in small nations declined by 11 percent in 2020. The pace of recovery has been slow to Russia-Ukraine war and a tightened global monetary policy.

Dependence on few economic sectors

The small states are dependent mainly in one or two sectors most commonly in tourism. Prior to the pandemic tourism expenditures were equivalent to an average of 18 percent of GDP for the small states and in cases of some countries it was as high as 50 percent. The restriction on travel hampered the economy of these states in a big way.

High dependence on imported food and fuel

In cases of small nations food and fuel imports constitutes one-sixth of their total GDP. The global wars have have led to sharp increase in food prices making grain, energy, and fertilizer dearer that has impacted the terms of trade and increased inflation.

Small nations remain prone to climate change

The rising sea levels and coastal erosion have brought existential threats to small nations. The damage caused by disasters is equivalent to nearly 5 percent of GDP per year for them since 1990.

The way forward for the small nations remain to build resilience to future shocks. This includes steps such as economic diversification, enhancing disaster risk management, lessening dependence on imported fossil fuels and collaborating across borders to achieve economies of scale.

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