Economic growth slowdown of China in Q2 2018
The economic growth of China, as per the assertions of the concerned article, can be seen to have slowed down to some extent, in the quarter of June in 2018, the annual growth rate of the economy of the country being the slowest since the quarter of September of 2016[1].
Economic activity indicators of China
The urban fixed asset investment in the country can be seen to be decreasing drastically, which may have contributed to the slowdown of economic growth of the country in the last quarter.
- Analysis:
The productivity and growth dynamics of an economy can be analysed with the help of the aggregate demand and supply Model. It depicts under the rise in the government expenditure, total productivity of the economy also rises. Investment is one of the most crucial components of the aggregate demand side of an economy and the fall in the investment leads to a fall in the aggregate demand in the economy, the result being shown with the help of the figure:
Impacts of fall in Investment on output
The fall in investment can be seen to reduce the aggregate demand, which in turn reduces the output (Y) of China in the June Quarter[3]. This is primarily because with the fall in the aggregate demand, the sellers also feel less motivated to produce more, which in turn leads to a fall in the supply and productivity of the country, which again, in the long term can cause economically stagnating situation.
Chapter 2: Inflation and Price Level
- Article: “UK inflation Preview: Rising inflation adds a reason why the Bank of England will hike rates in August”[4]
Obtained from: https://www.fxstreet.com/analysis/uk-inflation-preview-rising-inflation-adds-a-reason-why-the-bank-of-england-will-hike-rates-in-august-201807171047
- Article Summary:
As per the assertions of the concerned article, the external factors, which primarily include the increase in the price of oil and also internal factors like those of increase in the level of employment in the country, has been leading to increase in the aggregate demand, thereby putting upward pressure on price levels in the economy of the UK[5].
Figure 3: Inflation dynamics in UK over the years[6]
This increase in rate of inflation in the UK in the recent years, can be attributed to the latest decision of the Bank of England to raise the rate of interests.
- Analysis:
The increase in demand leads to increase in the price levels, thereby increasing the level of inflation in the country, which is known as a demand pull inflation and which as can be seen in the following figure:
As is evident from the above figure, the increase in the aggregate demand, has led to an increasing price level in the country (P1 to P2). This is an example of demand-pull inflation. One of the primary components of the aggregate demand being investment expenditure, the same can be controlled to some extent by manipulating the rate of interest of the country. In this context, increasing the rate of interest will lead to decrease in the amount borrowed, thereby decreasing the investment expenditures, which can lead to fall in the aggregate demand[7].
This in turn can lead to fall in the aggregate demand which in turn can help in reducing the inflationary pressure in the country in the coming years.
Inflation dynamics in the UK
Chapter 3: Wages and Unemployment
- Article: “UK wage growth slides to lowest rate in six months”[8]
- Article Summary:
As per the assertions of the concerned article wage growth rate of the UK has been the lowest in the last six months. The surprising fact which the article shows is that the low growth rates of wages is not coupled with the presence of high unemployment rate[9]. The main reason behind the same, as argued by the concerned article, is the creation of huge number of low wage jobs in the economy[10].
- Analysis:
The primary economic interpretation of the low growth rate of the wages in the country, the creation of low paid jobs in huge numbers in the country and the inter-relationship between the same can be put forward with the help of demand-supply in the labour market. In the presence of huge immigration in the country over the years, the supply of labour can be seen to be increasing in the UK in the recent period, the implications of the same can be seen with the help of the following diagram:
The presence of excess supply in the labour market can be one of the primary causal factor behind the increase in the additional jobs in the economy and also behind the sluggish rate of growth of wage rates as the priority of the workers are of getting employed, even at lower wage rates[11]. The number of eligible candidates in the labour force being high, the level of competition among them to get a job is also high, the advantage of which can be seen to be taken by the employers, who can keep the wage low and still get workers of desired skills for their operations.
Chapter 4: Savings, Capital Formation and Financial Markets
- Article: “Rising Capital Formation Should Galvanise GDP”[12]
- Article Summary:
The article points out towards the increase in the Gross Fixed Capital Formation in Nigeria, from an average of N1690325.32 million (2007-2016) to an all tome high of N2873296.49 million in 2016[13]. As per the assertions of the article, the recent slow-down in the economy can be reversed by encouraging the capital formation in the country by higher savings on part of the households by providing them incentives to increase their marginal propensity to save.
- Analysis:
The increase in the encouragement of people in Nigeria to save more can help in increasing the marginal propensity to save in the country, thereby having its implications on the overall creation of capital, which in turn can help in increasing the investment and also productivity in the country[14]. This in turn can also help in increasing the employment and wage dynamics thereby increasing the consumption expenditure, the impacts being shown as follows:
The increase in the capital formation in the concerned country can be seen to increase both the aggregate supply as well as the aggregate demand in the country, in the long run, there will be increase in the overall economic productivity and GDP of the country in the coming years. This in turn, can help the country to reverse its stagnating growth trends in the near future.
Chapter 5: Business Cycle, Short-term Economic Fluctuations and Aggregate Expenditure
- Article: “U.S. Business Cycle Risk Report – 22 June, 2018”[15]
- Article Summary:
Low wage growth rates in the UK
As per the assertions of the article, in spite of the USA experiencing trade wars and economic tensions with that of China, the current economy of the country is at lower risks of recession with the forecast of business cycle being robust over the coming years[16]. The article also indicates towards the fact that the presence of a forecast of high acceleration of GDP of the country in the coming years and the money market also shows no chance of negative dynamics.
- Analysis:
The term “Business Cycle” refers to the alternative upwards and downward movements of the economy of a country (measured in terms of the dynamics of the national output) along with its long-term growth trend.
When the economy experiences positive growth, the trend shows upward movement with peak being the highest achieved economic growth. However, at times of stagnancy and recessions the growth plunges to the trough before recovering again with the increase in the economic growth[17].
In case of the USA in the current period, the economy is in the positive side of the business cycle with no threats in the near future, which in turn indicates towards the fact the country is currently in the peak portion of the above shown business cycle. However, excessive trade wars with other economic giants like China and other economic tensions, if extended for a prolonged period, can hamper the economic growth of the country in the long run and can also have negative implications on the business cycle of the concerned country.
Conclusion
From the above discussion, it can thus be concluded that the economic growth of China has decreased to some extent in the previous quarter, much of which can be attributed to the fall in the investments in the country. In the economy of the UK, the inflation level can be seen to be increasing in response to which the Bank of England can be seen to be potentially taking the strategy of increase in the rate of interest.
The wage-rates of the UK can also be seen to be growing sluggishly due to the presence of huge labour supply and also due to creation of low wage jobs. In case of capital formation, Nigeria has been showing positive trends, which can help the country to achieve positive economic growth. In spite of presence of economic tensions with China, the economy of USA can be seen to be showing positive trends with no chances of recession or downturn in the near future.
References
Burda, Michael, and Charles Wyplosz. Macroeconomics: a European text. Oxford university press, 2013.
FXStreet. “UK inflation Preview: Rising inflation adds a reason why the Bank of England will hike rates in August”. FXStreet, 2018. Online. Internet. 20 Jul. 2018. .
Gandolfo, Giancarlo. International Economics II: International Monetary Theory and Open-Economy Macroeconomics. Springer Science & Business Media, 2013.
Hofmann, Boris, and Feng Zhu. “Central bank asset purchases and inflation expectations.” (2013).
Independent.ng. “Rising Capital Formation Should Galvanise GDP”. Independent.ng, 2018. Online. Internet.
Mankiw, N. Gregory. Principles of macroeconomics. Cengage Learning, 2014.
Morley, James, and Jeremy Piger. “The asymmetric business cycle.” Review of Economics and Statistics 94.1 (2012): 208-221.
Nolan, Peter. “China and the global economy.” Charting China’s Future. Routledge, 2012. 55-64.
Partington, Richard. “UK wage growth slides to lowest rate in six months”. the Guardian, 2018.
Peichl, Andreas, and Sebastian Siegloch. “Accounting for labor demand effects in structural labor supply models.” Labour Economics 19.1 (2012): 129-138.
Picerno, James. “U.S. Business Cycle Risk Report – 22 June, 2018”. Seeking Alpha, 2018.
Scutt, David. “Chinese economic growth slowed a bit in the June quarter”. Business Insider Australia, 2018.
Wilkinson, Frank, ed. The dynamics of labour market segmentation. Elsevier, 2013.
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