Paste your1. WHAT IS MEANT BY ECONOMIC GROWTH?
1.1. ECONOMIC GROWTH
ECONOMIC GROWTH IS HOW MUCH MORE THE ECONOMY PRODUCES THAN IT DID IN THE EARLIER PERIOD. TO BE EXACT, THE EXAMINATION MUST EVACUATE THE IMPACTS OF INFLATION. IN THE EVENT THAT THE ECONOMY IS DELIVERING MORE, ORGANIZATIONS ARE MORE PRODUCTIVE AND STOCK COSTS RISE. THAT GIVES ORGANIZATIONS MONEY TO CONTRIBUTE AND CONTRACT MORE REPRESENTATIVES. AMADEO (2017) STATES THAT ‘AS MORE EMPLOYMENT OPPORTUNITIES ARE MADE, INCOME RISES’. BUYERS HAVE MORE CASH TO PURCHASE EXTRA GOODS AND SERVICES. WHEN CONSUMERS BUY MORE IT DRIVES HIGHER ECONOMIC. ACCORDING TO MOHR (2015:410) ECONOMIC GROWTH IS TRADITIONALLY DEFINED AS THE ANNUAL RATE OF INCREASE IN TOTAL GROWTH OR INCOME IN THE ECONOMY.
ECONOMIC GROWTH IS AN EXPANSION IN THE CAPACITY OF AN ECONOMY TO CREATE MERCHANDISE AND SERVICES, CONTRASTED FROM ONE TIMEFRAME WITH ANOTHER. IT IS AN EXPANSION IN TOTAL PROFITABILITY. IS THE INCREASE IN THE INFLATION-ADJUSTED MARKET VALUE OF THE GOODS AND SERVICES PRODUCED BY AND ECONOMY OVERTIME, IT IS CONVENTIONALLY MEASURED AS PERCENT RATE OF INCREASE IN REAL GROSS DOMESTIC PRODUCT (GDP) USUALLY IN PER CAPITA TERMS, GROWTH IS USUALLY CALCULATED IN REAL TERMS THAT IS INFLATION ADJUSTED TO TERMS TO ELIMINATE THE DISTORTING EFFECT OF INFLATION ON THE PRICE OF GOODS PRODUCED.
1.2 HOW ECONOMIC GROWTH IS MEASURED
THE BEST WAY TO MEASURE ECONOMIC GROWTH IS BY USING THE GROSS DOMESTIC PRODUCT (GDP). ACCORDING TO MOHR (2015: 235) GROSS DOMESTIC PRODUCT IS THE TOTAL VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED WITHIN THE BOUNDARIES OF A COUNTRY IN A PARTICULAR PERIOD USUALLY ONE YEAR. GDP IS THE MOST IDEAL APPROACH TO QUANTIFY ECONOMIC GROWTH. IT CONSIDERS THE NATION'S WHOLE ECONOMIC SUPPLY. IT INCORPORATES ALL MERCHANDISE AND SERVICES THAT ORGANIZATIONS IN THE COUNTRY DELIVER AND AVAILABLE TO BE PURCHASED. IT DOESN'T MAKE A DIFFERENCE WHETHER THEY ARE SOLD LOCALLY OR ABROAD.
GROSS DOMESTIC PRODUCT MEASURES FINAL PRODUCT PRODUCED. IT DOES EXCLUDE THE PARTS THAT ARE MANUFACTURED TO MAKE AN ITEM. IT INCORPORATES EXPORTS IN LIGHT OF THE FACT THAT THEY ARE MANUFACTURED IN THE COUNTRY. IMPORTS ARE NOT INCLUDED IN THE ECONOMIC GROWTH. USUALLY COUNTRIES MEASURE ECONOMIC GROWTH QUARTERLY. THEY UTILIZE REAL GDP TO MAKE UP FOR THE IMPACTS OF INFLATION. GROSS DOMESTIC PRODUCT DOES EXCLUDE UNPAID ADMINISTRATIONS/UNPAID SERVICES. IT DOES NOT INCLUDE OR LEAVES OUT CHILD CARE, UNPAID CHARITABLE EFFORT OR UNLAWFUL BLACK MARKET EXERCISES. IT DOESN'T CONSIDER THE CONSEQUENCES. FOR INSTANCE, THE COST OF PLASTIC IS NOT EXPENSIVE SINCE IT DOES EXCLUDE THE COST OF TRANSFER. THUS, GDP DOESN'T QUANTIFY HOW THESE COSTS AFFECT THE PROSPERITY OF THE SOCIETY. A COUNTRY WILL ENHANCE ITS WAY OF LIFE WHEN IT FACTORS IN ECOLOGICAL AND ENVIRONMENTAL EXPENSES. REAL GDP CAN BE MEASURED BY MEANS OF QUARTERLY GROWTH AT A YEARLY RATE, FOUR QUARTER GROWTH RATE OR ANNUAL AVERAGE RATE.
1.2.1 QUARTERLY GROWTH AT A YEARLY RATE
QUARTERLY DEVELOPMENT/GROWTH AT A YEARLY RATE DEMONSTRATES THE ADJUSTMENT IN REAL GDP STARTING WITH ONE QUARTER THEN ONTO THE NEXT, INTENSIFIED INTO A YEARLY RATE. FOR INSTANCE, IN THE SECOND QUARTER OF 2001, THE ECONOMY GREW 0.1% FROM THE MAIN QUARTER. ON THE OFF CHANCE THAT THE ECONOMY HAD DEVELOPED AT THAT PACE FOR A WHOLE YEAR, THE YEARLY DEVELOPMENT WOULD BE 0.4%. SO THE QUARTERLY DEVELOPMENT AT A YEARLY RATE WAS ACCOUNTED FOR AT 0.4%. THIS MEASURE IS REGULARLY UTILIZED BY THE MEDIA. IT MAKES A DECENT JOB SHOWING WITH REGARDS TO DEMONSTRATING LATE ECONOMIC DEVELOPMENTS. IN ANY CASE, IT LIKEWISE HAS A TENDENCY TO BE UNPREDICTABLE. THIS IS ON ACCOUNT OF THE IMPACTS OF ANY ONE-TIME-JUST FACTORS THE QUARTER, WORK DEBATE FOR INSTANCE/ LABOR DISPUTES, END UP NOTICEABLY WHEN THE RATE IS ANNUALIZED.
1.2.2 FOUR QUARTER GROWTH RATE
THE FOUR-QUARTER, OR "YEAR-OVER-YEAR" DEVELOPMENT RATE, EXAMINE THE LEVEL OF GDP IN ONE QUARTER TO THE LEVEL OF GDP IN A SIMILAR QUARTER OF THE EARLIER YEAR. FOR INSTANCE, IN THE SECOND QUARTER OF 2001, GDP WAS 2.1% OVER THAT IN THE SECOND QUARTER OF 2000. THIS MEASURE IS WELL KNOWN AMONG ORGANIZATIONS, WHO BY AND LARGE PRESENT THEIR OWN PARTICULAR QUARTERLY INCOME COMES ABOUT ON THAT PREMISE TO DODGE OCCASIONAL VARIETIES.
1.2.3 ANNUAL AVERAGE RATE
YEARLY AVERAGE DEVELOPMENT RATE IS THE NORMAL OF YEAR-OVER-YEAR RATE CHANGES REVEALED IN A YEAR. YEARLY AVERAGES ARE ADDITIONALLY HELPFUL WHEN CONTRASTING WITH DIFFERENT FORECASTERS.
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1.4. BUSINESS CYCLES
Business cycles are type of fluctuations or patterns of downswings and upswings found in the aggregate economic activity of countries that engage their work in business enterprises (Whitta-Jacobsen & Sorensen, 2010:126). Business cycle consists of expansions that occur when the aggregate economic activity is increasing, followed by similarly general contractions and revivals which merge into the expansion phase of the next business cycle. This sequence of change is recurrent but not periodic, in duration business cycles vary from more than a year to ten or twelve years. They are not divisible into shorter cycles of similar character and magnitude. The fact that economic growth is repeatedly interrupted by recessions is a major source of concern for economic policy makers and the general public since recessions brings considerable economic difficulties to workers who may lose their employment, entrepreneurs who go bankrupt and to ordinary consumers who suffer capital issues on their assets and decrease in purchasing power due to inflation.
Business cycles involves to some degree the entire system of business: the establishment of firms and their disappearance, savings and investments, prices as well as output, extensions and repayments of loans, the employment of labour and other resources, costs and profits, the flow of income and spending, exports and imports, transactions in commodities, the money supply and fiscal operations of government. The following are characteristics of Business cycles:
1.4.1. Characteristics of Business Cycles
1.4.1.1. Aggregate economic activity
Business Cycles are characterised by co-movement or fluctuations of a large number of economic activities and rather not single variables like real GDP. Significant changes in income, output and employment and trade.
1.4.1.2. Expansions and Contractions
Periods of expansion of economic growth followed by periods of Contraction in which economic activities decline. Business cycles shows repeated increasing and decreasing economic activities.
1.4.1.3. Duration of more than a year
A full Business cycle lasts for more than a year. Fluctuations of shorter durations are not considerably the features of business cycles. Seasonal variations in economic activity are also not regarded as business cycles.
1.4.1.4. Recurrent but not periodic
Although business cycles repeat themselves, they are not far from been periodic. The duration is slightly more than a year to ten to twelve years and recessions can eventually turn into depressions. The patterns are not easily predictable and does not last for a fixed or predetermined length of time. Business cycles does not occur at predictable intervals.
1.4.1.5. Business Cycles are Persistent
Decline in aggregate economic activity, are followed by further declines that may be persistent for some time and also growth in aggregate economic activity can also lead to more economic growth. Persistency makes the forecasting turning point also to be important.
2. Different phases of the business cycle and their causes
Source: https://kalyan-city.blog.co.za/2011/06/4-phases-of-business-cycle-in-economics.html
2.1. Prosperity phase
According to Akran (2011) ‘when there is an expansion of output, income, employment, prices and profits, there is also a rise in the standard of living’. The prosperity stage is the advanced level of recovery period of the business cycle. In this stage there is efficiency, work, individual’s salary and utilization are at the best. At the point when there is bring up in benefits, organizations can get credits from monetary foundations/ banks. As the request expanded for bank credits and advances the rate of premium achieves the most superior floor, which prompts sharp climb in the costs.
Akran (2011) states that the features of prosperity are high level of output and trade, high level of effective demand, high level of income and employment, rising interest rates, inflation, large expansion of bank credit, overall business optimism and a high level of MEC (Marginal efficiency of capital) and investment.
2.2. Recession Phase
In the recession period, the financial exercises diminish. At the point when request begins falling, the overproduction and future investment designs are stopping. There is a firm decrease in the salary, work, costs and benefits. The agents lose certainty. It decreases speculation and investments. The banks and the general population attempt to get more noteworthy liquidity, so credit contracts. Extension of business stops, securities exchange falls. Requests are scratched off and individuals begin losing their occupations. The expansion in joblessness causes a sharp decrease in pay and total request. For the most part, recession goes on for a brief period.
2.3 Depression Phase
At the point when there is a persistent diminishing of output, salaries, jobs, costs and benefits, there is a decreases in the standard of living of people and depression sets in. Akran (2011) argues that the features of depression phase are fall in volume of output and trade, fall in income and rise in unemployment, decline in consumption and demand, fall in interest rate, deflation, contraction of bank credit, overall business pessimism and a fall in MEC (Marginal efficiency of capital) and investment.
2.4 Recovery Phase
In the recovery stage economy gradually moves towards recovery. Gradually and relentlessly the levels of salaries, jobs, utilization and costs goes upward in restoration period of business cycle. Those consumers postponed their utilization in the expectation of a decrease in costs, now return to utilization. As the utilization begins in the economy organizations winds up plainly productive. There is re-work in the economy.
3. What is a technical recession?
A technical recession is described as a temporary economic decline which trade and industrial activity are reduced through two consecutive quarters of negative economic performance. Like in short it simple means that the economic activity of the country is declining which this is never a good thing to happen in a country. It is just a fall in real GDP. (English dictionary for oxford,
South Africa joined a long list of the world economic recession in May 2009, the consequences of such a recession often includes a decrease in business production, a rise in unemployment and less spending (Stats SA, 2009). So therefore, in South Africa’s case it is particularly serious because the country needs strong economic growth to make inroads into unemployment, which currently stands at more than 27%. South Africa desperately needs a strong economy for other reasons too but most is that the living standards of its citizens cannot improve without economic growth, and the economy needs to grow for the government to be able to increase revenue to meet its growing social welfare budget.
3.1. What causes the technical recession in South Africa?
A fall in aggregate demand causes recessions. So, this demand side could be due to several factors, such as financial crisis when banks and other financial institutions faced major losses associated with the securitization of loans in the sub- prime housing mortgage market, rise in interest rates or fall in asset price like for example houses, and the fallings of the financial systems which contributed to the financial crises.
3.2. Causes are as follows:
3.2.1. Demand side shock: factors that can cause a fall in aggregate demand are
‘ Higher interest rates which reduce borrowing and investment of money from the banks.
‘ Falling real wages.
‘ Falling consumer confidence.
‘ Credit crunch which causes a decline in bank lending and therefore lower investments.
‘ A period of deflation, when prices fall people are encouraged to delay in spending, also deflation increases the real value of debt causing debtors to be worse off.
‘ Appreciation in exchange rate will make exports to be more expensive and thus decreases the demand for exports.
3.2.2. Supply side shock
For example, higher oil prices increase production and cause the short run aggregate supply curve to shift to the left. Supply shocks results in lower real GDP and higher inflation rates. This is difficult to solve with monetary policy because we have both inflation and lower output to try and solve.
‘ Confidence: a fall in confidence can precipitate a recession.
‘ Stock market crash causing financial turmoil and decline in confidence.
‘ Adherence to gold standard and overvalued exchange rate.
‘ Deflationary fiscal policy worsened situation. For example, higher taxation and lower spending.
4. Countries under the same boat of Recession
4.1. Nigeria Economic Recession
Many African countries have been in serious economic recessions in some recent years that turned into possible Depression. The longest economic recession lasted for 10 years (1929-1939) in the United States. Nigeria with a population of approximately 180 million of people and the country only depends on Crude Oil have experienced a drastic economic recession which led to the fall of crude oil prices, weakening the economy causing high costs of living, increase in unemployment rates and living below the poverty line for Nigerian people (Afolabi, 2017:2). In 2014, the Ebola disease struck Guinea spreading to countries like Nigeria and Senegal. The disease imposed a heavy burden on the government of Nigeria as it had to increase its expenditure.
Nigeria is currently ranked third among the 22 countries with high Tuberculosis burden and responsible for about 80% of the Global TB burdens. The spread of diseases such as Tuberculosis, Cholera, Malaria, Tetanus and Pneumonia during economic recessions impacted mostly poor people who could not buy any medication and also the government could not provision any medication. The economic recession had serious impact on the provision of medical drugs to women, children and the maternity health of the Nigerian health services as little money is allocated for Health services.
Nigeria had massive cuts in jobs, rising unemployment, falling family incomes and significant rise in inflation which were results and indicators of the economic recession. A tabloid newspaper report in Nigeria that ‘Nigeria is in serious recession, the economy is from bad to worse’. Price commodities such as fuel have doubled and the purchasing power diminishing due to inflation. Economic recession in Nigeria has affected many sectors of the economy which are education, health, agriculture, trade and housing sectors.
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