several weeks now, avid readers have communicated to me that
my columns on economic indicators after the Budget, were well
warranted, but often a bit too complex. I made a commitment
to revisit them, and present the simplest perspectives. So,
thats what well do for the next six weeks.
This is so important because in a well-reported 1974 study,
conducted by the World Bank, it was found that in underdeveloped
and developing countries, which had experienced as much as
ten years of rapid growth statistics, at least 30 per cent
of their populations had no real benefit from the economic
So what is economic growth? Its about the collective
use of resources and money. It determines what we can buy,
what we can save, and what our standard of living is likely
to be, now and in the future.
Economic growth occurs when a country is producing more goods
and services than in the past. Such a country has more to
sell and typically, more people, including persons or companies
from abroad who are willing to pay for such goods and services.
What causes a country to produce more? There are two common
explanations. The first is that there is a new discovery,
or a new resource, like natural gas, for example.
The second way a country can produce more, is by better use
of its existing resources. For example, if people are retrained
and given new modern tools or computers, they will get more
done faster, and with greater efficiency.
Thus more units of goods are produced or more customers can
be served. The simple result is more sales, more cash turn
over, more profits, more salary, more incentives to work smarter,
and more money saved. But keep in mind, that because of the
interactions of many factors, social and otherwise, it is
not always that simple an equation.
The economic problems occur in deciding what is produced,
how it is produced, and who gets the goods and services when
they are produced. If company A can produce an item, that
is cheaper, and just as good, as that being produced by company
B, it leads to competition. In an economy, company A will
have an advantage.
Economics has two sides. It can seek to bring a level of understanding
by simply describing what exists and how things work. On the
other side, economics can be policy economics which seeks
to analyse how people will behave if certain measures are
imposed, or removed.
Economic indicators are a result of the compilation of statistics,
and the analysis of what these figures or trends will mean
in three major areas: the labour market, the financial market,
and the goods and service market.
The common indicators are inflation, GDP (gross domestic product),
GNP (gross national product), unemployment, personal saving
Inflation is about prices. The inflation statistic measures
the overall increase in prices in a predetermined basket of
goodsused as a base, over a fixed period of time. We
have been hearing the terms headline inflation and core inflation.
We have also been hearing that the base or the items in the
basket of goods can change over time.
Other terms being bandied about are retail price index and
consumer price index.
The key question in the inflation scenario is whether you
gain or lose during an inflation. That really depends on whether
your income rises faster or slower than the prices of the
goods and services you buy.
Next week we will go into the terms in inflation.