“China’s Economic Growth Slowed To 6.9% In The Third Quarter Of 2015, The Weakest Rate Since The Global Financial Crisis. The Year-On-Year Growth Rate Is Also Below The Government’s 7% Target”.
Evaluate The View That The Effects Of Lower Economic Growth Are Always Negative.
Countries do not measure their useful growth rate. However, there has been an agreement that economic growth tends not to be measured well by GDP (gross domestic products). However, there are questions to whether there are certain forms of growth that have been incorrectly measured which serves as a good purpose. The fact is that lower economic growths are always negative. Generally, lower rate of economic growth are causes of higher unemployment rate. However, this is not always the case. For example, in the United Kingdom during the 2010-2013, there was slow economic growth with unexpected fall in unemployment rate. However, in a country that experienced a negative economic growth or recession, there are expectations that level of unemployment rise. This is the case since:
- In such a country, there are fewer demands for goods and firms will be forced to produce less hence requiring fewer workers.
- During recession period as well, some of the firms will experience bankruptcy hence making most of the employees redundant.
- Finally, during recession period, firms are reluctant when it comes to hiring of employees due to uncertainties as well as negative growth (Allen, Qian and Qian 2005).
However, in many instances, it can be noted that there is rise in unemployment even with positive rate but with low economic growth. One of the reasons is due to the fact that economic growth may be lower than the improvements that may be done in the productivity growth. Take a case of when an economy such as a China experiences a long trend rate averaging at 2.5 percent. This would automatically mean that productive capacity of the country would increase with an average rate of 2.5 percent per year. The level of growth in productivity may be due to improvements that may be made in the level of technology as well as improvements made in labor productivity (Brun, Combes and Renard 2002). This means that firms will have a capacity of producing more goods and services using the same employees. However, assuming that the rate of economic growth tends to be 0.5 percent, this would mean that, the demand within the economy may only grow at an average rate of 0.5 percent per year (Lin and Liu 2000). This indicates that the supply within the country would increase faster than the demand level. Hence, firms within the economy would be forced to lay off some of the employees since there is insufficient demand. In such a situation, the country would be experiencing a negative output gap (Poncet 2003).
On the other hand of China and unemployment rate, there are estimations that economic growth of China may slip under 7 percent a year with expected rate of unemployment increasing. This may be because due to the fact that China has been making some rapid productivity gains. Within China, the old inefficient state owned businesses are becoming privatized with easier efficiency gains to be made. As well, workers who are becoming unproductive have become redundant from the state owned industries. Hence, China will be expected to have rapid economic growth if it wishes to absorb the growth in supply of labor (Frankel and Rose 2005).
In case of rapid technology and structural changes within the entire economy, these may cause an issue of unemployment despite the level of economic growth. For instance, due to rapid improvements in the level of technology, there may be increased output despite the fact that some of the employees may possess insufficient knowledge and skills towards taking the new high technology jobs. Hence, it may be noted that, there would be increase in the structural and technological unemployment within certain period of economic growth (Jun 2002).
However, there are no guarantees that, lower economic growth may be a cause of higher unemployment in the country. There are possibilities of decreased unemployment rate in the country despite the lower growth rate period. For instance, in the UK, there were falls in the level of unemployment from 2011-2013 despite experiencing the lower growth rate with expectations that the unemployment rate in the country would lag behind during the recession period. However, some of the reasons behind the fall in the unemployment in the country during the period were associated with:
- Experiencing poor productivity growth in the country where labor productivity was low during the period. Hence, firms required more employees despite the limited growth output level.
- Increase in the part-time as well as temporary jobs. In the country, the employment rate may be improved due to increase in the under-employment where people would accept taking the lower hours than they would wish.
- Lower wage growth which means that labor would relatively be more attractive than expected in the economy (Berthélemy and Demurger 2000).
When addressing the issue of economic growth, it is worth to note that, growth refers to the gross domestic product which accounts for the values of all goods as well as services that are produced in the country over certain period of time. However, the fact is that GDP does not make any assumptions associated with usefulness of various production types. Mainly, the presumptions made are that, macroeconomic growth in the country may connect to great top line opportunities for private organizations (Qingwang and Junxue 2005). In case of no improvements made in the productivity levels of the country, there would be some similar increment to productivity and jobs level. This definitely means that without changes in the tax rates, there would be a large tax base. This is essential to the fact that major components of government plans would be management of capita accounts which on the other hand has crucial implication on the international credit markets with the ability of borrowing at a reasonable rate (Lin and Liu 2000).
Taking another focus, a lower GDP growth in the coming years may be associated with collapse in China’s financial system. In the past, the country’s financial system was growing at a faster rate. However, in the near future, the financial system may not grow at the same rate since citizens may have lost trust with the country’s credit card system. The financial system promised to make the lives of the Chinese to be more better but the promise has proved to be flawed due to the lower economic growth experienced currently (Henderson 2000). Hence, the government and citizens have started noting the importance of traditional saving economies compared to the modern way of credit economy. The fact is that the country would experience a transition stage where there would be lower GDP growth. However, later in the course, the economy would see a better growth rate. This will have to depend on the transition and time. As well, the efforts and beliefs of the government may focus to other sectors but to restore growth, time will be required (Xu 2000).
There are believes that value of growth may be equal for the country’s social and financial terms. Considering the financial issues in connection to the relative simple corporate and present value model, the country’s short term growth rate may be set out as one crucial factor. Most important is the sustainability growth rate as well as effect of the risk premium. In case of production, there would be lower growth rates in short terms when compared to financial securitization which may not be sustainable to consider low risk premiums (Beine, Docquier and Rapoport 2001).
Finally, China’s lower growth rate may not be necessary bad or good. Economic growth sourced from the intent and sustainable approaches may as well be low (Henderson 2000). However, in case of growth that may be pursued on purpose of scale or with no certain intention, may be part of dangerous growth in the country. Hence, there are no reasons to why such growth may not apply to such economy.
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