What is Economic Disturbance?


Economic disturbance is anything that leads to disruptions and irregularities in an economy . It can be any event or situation, natural or unnatural, that causes deviation from the expected economic conditions. 

Raghuram Rajan, an Indian economist and a former governor of the Central Bank of India, has defined economic disturbance as a disruption in the business cycle. He defines economic disturbance as fluctuations in economic activities characterized by periods of expansion (boom) followed by contractions (recession or depression).

Similarly, Hyman Minsky, an renowned economist, defines economic disturbance as the result of structural imbalances in the economy. This means, disturbance in an economy can occur when there is excessive speculation, overleveraging , and a buildup of debt in the financial system.

Economic disturbance is a prevalent phenomenon in the study of the economy. Some of the very common economic disturbances are:

Financial CrisisRecessionDemographics Shifts
Policy ChangesTechnological DisruptionsGlobal Economic Shocks
PandemicsNatural DisastersLabor Market Disturbances
Trade ImbalancesGovernment Fiscal CrisisEnvironmental Issues
Financial Market VolatilityWar and Geopolitical ConflictsEnergy and Commodity Price Volatility

Different Economic Disturbances

The following tables present the different events and factors that cause economic disturbance into their respective categories. All the factors directly or indirectly impact the normal functioning of the economy.

Financial CrisisBanking Crisis
Stock Market Crashes
Currency Crises
Sovereign Debt Crises
RecessionEconomic Contractions
Persistent High Unemployment
Decline in consumer and business spending
Demographics ShiftsAging populations
Population growth or decline
Migration patterns
Policy ChangesChanges in tax policies
Monetary policy adjustments
Trade Policy Shifts
Regulatory changes
Technological DisruptionsAutomation and Job Replacement
Rapid Technological Advancements
Industry Disruptions
PandemicsDisease Outbreak
Pollution and Environment Degradation
Natural Resource Scarcity
Global Economic ShocksOil price shocks
Global Economic Downturns
Financial Contagion 
Government Fiscal CrisisExcessive government debt and deficits
Budgetary Challenges and austerity measures
Labor Market DisturbancesHigh and persistent unemployment
Labor strikes and disputes
Skill gaps and mismatches
Financial Market VolatilityRapid and large scale fluctuations in financial markets
Asset price bubbles and crashes
Trade ImbalancesTrade deficits and surpluses
Trade disputes and protectionism
Exchange rate fluctuations
Geopolitical ConflictsWar and armed conflicts
Trade disputes and tariffs
Energy and Commodity Price VolatilityFluctuations in prices of oil, gas and other commodities
Energy supply disruption
Environmental IssuesClimate change impacts
Pollution and environmental degradation
Natural resource scarcity
Natural DisastersEarthquakes

Characteristics of Economic Disturbances


Economic disturbances are abrupt in nature. Such events have limited predictability despite various economic indicators. Such disturbances emerge rapidly and it is difficult to predict the event accurately. Economic indicators support the environment of the happening but it is challenging to prepare for their impact.

Diverse Triggers

There are various economic disturbances and different disturbances have different triggers. Different events will trigger different disturbances. Similarly, changes in internal and external environments trigger different disturbances.  The economic disturbance of 2023 was triggered by the COVID, followed by inflation and economic contractions. Similarly, the dot com bubble was triggered by the unanticipated technological disruptions.


This is a defining characteristic of economic disturbance. The future events are uncertain. No one can anticipate the true impact of certain natural or artificial change in the economy. A slightest change in trade policy can change the course of economic relations between two countries. 

For instance, trade sanctions between the U.S. and China have changed the course of business between the U.S. and China. Top of it, as a geopolitical stance, India now has become ahead of China for trade preference.

Spillover Effects

Economic disturbance can be contagious. This means, one effect could lead to multiple and prolonged economic downturns. All the economic propositions are interrelated and impact on one factor could lead to spillover effect, amplifying the disturbance. The Global Financial Crisis of 2007-2008 is an example of the spillover effect of economic disturbance.

For instance, international banks invested more on toxic assets in the housing market. When the housing crisis hit the U.S. market, investors lost confidence in the banking system and the banks failed. The global banking system eroded and the credit system got affected, creating the global crisis.

Sectoral Disparities

Disturbances impact all the sectors of economy. One incident can have an impact on an individual, organization, institution or a business level differently. Some individuals or industries can be resistant and prepared for disturbances while others can be vulnerable and sensitive. 

For instance, the financial sector may experience turmoil during the financial crisis. Meanwhile, the agricultural sector may have the least effect.


There is no certainty of duration for economic disturbances. There may be short-lived irregularities that are brief and temporary. Such irregularities have a mild impact. Natural disasters, supply chain disruptions, energy price shocks, temporary financial market volatility etc. are short-lived irregularities.

There are prolonged crises which may last for years and decades. They have a great impact on the life of individuals and the economy. Such prolonged irregularities may cause structural shifts in the economy. Financial crises, Recessions, Sovereign Debt Crisis, Structural Unemployment, geopolitical conflicts are some of the prolonged economic disturbances.

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