Group items tagged

Currently the economic growth forecast of South Africa isn't looking as promising as thought, while  additionally its budget deficit is going to be higher than promised. 4.8 percent of GDP instead of 4.6 percent. According to the president, Gordhan, this is due to slower economic growth and not due to increase in government spending. He emphasizes that there will be no increase in government spending. From a neoclassical side this is a good thing as an increase in spending accompanied by a decrease in taxes will only further increase the governments budget deficit. The mining strikes ongoing in South Africa have had two significant consequences. 1. more people have become unemployed due to the strikes for higher wages.2. Offshore investors are worried that the government will increase spending to ease the social tensions. As a result both decreases AD as there is less consumption and investment. 

Indonesia is threatening to slow down its economic expansion because of its  lack of spending, especially on infrastructure. At this stage, Indonesia is only  spending around 2% of its gross domestic product on capital expenditure and  infrastructure which is far below the amount needed to support Indonesia's  current economic growth.

This article discusses the changes which European Union officials are planning for the future in order to ensure economic growth. One of the changes mentioned are the Spanish borrowing costs which will be pushed up to their highest levels for four months. In the short-run this will mean less spending from consumers, but in the long run will ensure a significant decrease in debt. Furthermore, they have called on national governments to "implement a series of job-creating policies". These include cutting labor-related taxes, as well as shifting the burden to property, energy and emission levels. These particular changes will cause a rightward shift in aggregate demand as there is an increase in government spending. Moreover, countries will be forced to lift remaining restrictions on worker movement within the EU, which will allow for more employment. This will also cause a rightward shift in aggregate demand because there will be more employed workers and therefore amount of consumption will increase as more people will be able to spend more money.  Overall, this article shows improvements for the future which will increase aggregate demand of the EU. 

Ireland's high current unemployment rate of 14.9 percent is a result from its economic situation : Ireland is in a recession. The article clearly stipulates this, there is a 'recession in the real domestic economy'. The recession arose from the housing bubble : mortgages were cheap, people overborrowed and then the high housing prices fell so that people were less wealthy and no longer able to pay their mortgages. Wealth is a determinant of AD. It is the added value of all assets or stocks. If wealth or perceived wealth increases, then so will a household's consumption of goods, thereby shifting demand, as the household feels 'wealthier' or able to purchase more. The reverse is also the case, when wealth declines, demand declines, such as in Ireland. The Irish were much less willing to consume goods, as they believed they were less wealthy or had less money( which they eventually did , upon having to pay mortgages; debt), and so consumption decreased, which thus shifted aggregate demand into a demand slide recession. This is a situation where prices in a nation inflate and output decreases, due to the lesser demand. If less is being produced, less factors of production are required. Thus labor, a major factor of production is no longer required in the economy, which gives firms the incentive to lay off many of their workers. This is the unemployment Ireland is experiencing. It is interesting that the article also depicts the  'austerity drive'  that the Irish government resulted to in the recession.  As it correctly suggests, this is 'self defeating', as during a demand slide recession the Keynesian policy follows that the government should not save its funding, but rather spend. In a time of recession, the government should spend,  so as to decrease unemployment stimulate the economy. If the government spends, this will have a multiplier effect through the economy, as it provides income to households ( by spending, the government employs labor), where househo

The article discusses that the US may face a fiscal cliff in order to reduce the large deficit that has accumulated in the past. A fiscal policy stands for a series of major tax increases and government spending cuts if Congress does not act. The article discusses that through lower government spending and higher taxes it is expected that $600 billion can be extracted from the economy to decrease the debt. However economists think that every dollar of deficit reduction will subtract the same or a greater amount from economic growth. In theoretical terms this would make sense. If government spending decrease this reduces aggregate demand in the economy and by that will cause a decrease in real GDP. Households will cut back on purchases and especially households that are dependent on government support through unemployment benefits will suffer from the policy. Although this will decrease the deficit of the US it may be that it distracts the fragile recovering economy. 

The Portuguese government has revealed the details of its draft budget for 2013. It is said to be one of the harshest in the country's recent history.  The Portuguese government has spent a significantly greater amount than the total revenue, and is therefore experiencing a budget deficit. Due to this deficit, government is forced to borrow money from the public, thus increasing its budget deficit even further, and ultimately increasing their total national debt.  The government was already granted a 78 billion- euro bailout last year, which has still not accounted for their budget deficit. Therefore, the Portuguese government was forced to make some huge changes in the economy,.  As stated in the article, the government will have to borrow money from the public through average income taxes, which will increase from 9.8% to 13.2%. Furthermore, they will have to cut spending worth up to 2.7 billion euros next year, which includes laying off 2% of the countries 600.000 public sector employees.  Moreover, the Portuguese government has decided to cut their spending by not raising social security contribution next year from 11% to 18%.  According to Vitor Gaspar,finance minister, this budget would allow Portugal to reduce its budget deficit to 4.5% in 2013.  Ultimately hoping to achieve the European Union target of 3% of GDP. 

This article discusses the need for the U.K. government to "show some political backbone" by becoming more enterprise friendly in order to stimulate the badly required growth of their economy. U.K. business leaders have become increasingly concerned as the CBI has predicted that the U.K. economy will shrink by 0.3% this year. This fall in GDP is a sign that the country is entering a double-dip recession. The reason behind this is declining exports, the on-going euro crisis, a stagnant economy since the coalition, reduced borrowing on credit cards, an increase in unemployment and a lack of household spending. A reduced borrowing on credit cards and lack of household spending directly affects GDP as GDP can be calculated using the expenditure method, where household consumption is one of the factors taken into consideration. If consumption falls, so does GDP. In order to prevent the GDP from falling further and to promote economic growth, schemes such as tax breaks for small firms taking on extra workers ,schemes that boost the mortgage and household market and schemes that support household expenditure have been implemented. This could lead to a rise in employment as well as expenditures, causing GDP to grow. 

The global rise in food prices, caused by a drought in the US, has increased Brazil's inflation, along with the government trying to put a stop to the currency gains. Due to bad weather conditions, the tomato industry has been affected, and has lead to an increase in the price of tomatoes. With global prices on the rise, there is less want to import goods, but with inflation in Brazil, high food prices all around is hurting its economy. Currency gains are also having a negative affect which is hurting industrial competitiveness. Consumers are finding it difficult to cope with rising food prices and in the short run will mean that a lot of their earnings are being spent on necessities and not spending on luxuries. Low unemployment is pushing up wages, and with interest rates being cut, people will most likely try and save their money.

Britain's budget deficit has turned out to be smaller than previously thought in the first six months of the current tax year. However, recent data suggests that they will have to announce extra government spending cuts or taxes rises if it is to meet this year's deficit-cutting target. Britain's plans to eliminate the deficit by 2015 have been pushed back by two years as economic growth has been far weaker than predicted and its deficit still remains the largest of any major European country. 

Luxembourg's Prime Minister Jean-Claude Junker is defending the newly released budget bill, in place for 2013. The bill set in place plans to invest more money into the consolidation package, in place to consolidate Luxembourg's budget. A 1.8% increase in government spending, in relation to the budget set in 2012, is put forth to remove any divergence from the country's stability and growth. Juncker stressed that although the recent financial crisis which has caused a recession in Luxembourg over the past 4 years, the bill will insure that Luxembourg's deficit will be lower in 2013 than 2009. Juncker says that in 2013, Luxembourg's deficit will be at 4.3%.  Juncker says the reason Luxembourg has come into deficit is the investment of 200 million Euros into Luxembourg's employment fund. Furthermore, the increase of unemployment isn't beneficial to the countries current financial situation.  He does not plan to raise VAT, as some countries in the EU such as the Netherlands have recently done to fill part of their deficit. This would only harm economic recovery and affect the country's low-income earners.  Juncker's ultimate goal is to make Luxembourg debt free by 2014. The minister promised that the government would try their very best to achieve this goal, while still being aware that the economic development of Luxembourg remains "extremely fragile".

The article discusses the increasing level of unemployment in Spain hitting record levels. Currently around 5.7 million Spanish are out of work. Traditionally this number decreased during the second quarter of the year during the tourist season however this year unemployment rose to 24.6% during that time. 53% of the unemployed are under 25. This may have great effects in the future once Spain's economy recovers. The younger generation will want to take over jobs of the older generation. However due to the lack of training they may not have the skills required. The amount of jobs has decreased so much that almost half of the unemployed have been out of work for more than a year. This is largely due to a cut in government, regional and municipal spending that has decreased the number of workers in the public sector by 5% in the past year. Because the number of unemployed is so high and is constantly increasing the government had to cut their unemployment benefits leaving only around 40% in certain areas receiving unemployment benefits. The reason causing the high unemployment is the recession that Spain is currently in. In the future crime rates may increase in Spain as many households have no income and are losing their unemployment benefits from the government. 

According to this article, Germany's unemployment had increased for a fifth month in august. The unemployment rate is currently at 6.8%. This increase in unemployment was a consequence of the European debt crisis, which had severely decreased demand for exports, causing companies to hold back on investments.  These two factors have therefore decreased both aggregate demand (net exports decrease) and aggregate supply (decrease in investments). Therefore fewer jobs are required as less output is being demanded. This is shown by the numerous job cuts which have occurred throughout Germany. "Siemens AG (SIE) said on Aug. 27 it will cut 500 jobs at its German factories making industrial gear boxes and clutches by 2016, citing slack demand".   However, the article states that the unemployment rate is still the lowest it has been for the past two decades, and meanwhile wages are rising. This increase in wages is boosting consumer spending, therefore causing an increase in aggregate demand, which should eventually allow for aggregate supply to increase, and therefore increasing the need for workers.  Moreover, although unemployment has risen in Germany, it still does not yet compare to the 8.2% unemployment of the US, the 10.8% in Italy, and the euro-area average of 11.2%. 

Over the past year, high inflation has pushed the UK economy into a recession. Inflation has been caused by prices of goods rising faster than wages, also known as cost-push inflation. The weakness of consumer demand has resulted in a decrease in investment from businesses. Specifically, higher food and oil prices has been the reason as to why disinflation has been occurring slower than anticipated by the Bank of England. The issue is that with rising prices, the spending power of consumers is being diminished. 

This is a classic example of cost-push inflation. The supply costs are increasing (in this case the workers wages) which means that SRAS shifts to the left, as less is being is being supplied. Firms hire less workers or produce less because of the high costs. As a result, price levels rise, unemployment levels rise and the real gross domestic product falls. This is also obvious because, if workers go on strike as mentioned in the article, then they are producing less goods, meaning that GDP obviously decreases. This could turn into an inflationary spiral. This spiral is because, when wages are increased for purposes such as to pay or rent or everyday goods, the firms also demand higher prices, which causes those who buy from them to charge more too. This is what causes the cycle to begin. Otherwise it could get to a point where currency becomes worthless.

coming soon. 

Data shows that contraction in the UK has not dropped by as much as it was expected to, so could this mean that they are reaching a trough and the recession is coming to an end? Inflation is down and unemployment is falling, although the productive capacity of the economy has been affected because of a shift to part-time work. The UK  has had a flat economy over the past two years, so the lower than expected changes in GDP do not change that it is in a recession.