27th Apr 2011 - 0.5% Growth for Q1 - What does this mean to you or me?
The Office for National Statistics has just released figures showing that our economy grew by 0.5% in the first three months of the year. What does this mean to you or me? What are the direct implications to us?
Firstly this percentage is our Gross Domestic Product (GDP) and in real terms refers to the market value of all goods and services produced within the UK less the total value of imports in a given period.
Why is this important to us? Well, the fact is GDP is the strongest measure of the health of our economy. In economic terms the higher the GDP the better and the stronger our economy; put it like this, in value terms we have made more goods and services as a country then importing them. The bigger the gap, the better off as a nation we are. Negative GDP is never a good thing and two consecutive periods of negative contraction equals a recession and we don’t want to go there again so soon after the last one. The reality is that we only just missed entering a 2011 recession by half a percent, as confirmed today.
The precursor to higher GDP is higher manufacturing output, a stronger services sector, construction sector, etc. Using tangible goods and factories to illustrate this point, higher output means more business income, which in turns feeds itself down to salary inflation which means more demand for goods and services. As supply is responsive and will always lag behind demand we now have inflation which drives up the cost of living. It all boils down to simple supply and demand. It’s an interesting circle of events that affects us all in some way.
Yes this synopsis is rather simplistic in economic terms and there is a number of other variables to take into account, but taking a step back and looking at the more complex domino effect of economics and where we fit in, is in itself quite amazing.
This is a world of many opinions. Please feel welcome to leave yours.
