GDP stands for Gross Domestic Product, which is a measure of the total value of all goods and services produced within a country’s borders during a specific period of time, usually a year. GDP is one of the most commonly used economic indicators to measure the economic performance of a country. It is calculated by adding up the value of all final goods and services produced in the economy, including consumer goods, business investments, government spending, and exports, while subtracting imports. GDP is often used as a measure of a country’s economic growth or recession, and it is used to compare the economic performance of different countries.
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Ways With which GDP Downfall Can Occur?
Gross Domestic Product (GDP) is a measure of the total economic output of a country over a specific period, usually a year or a quarter. A decline in GDP is usually an indication of an economic downturn or recession. Here are some ways in which a downfall in GDP is recorded:
- Decrease in production and sales: A decline in GDP is usually associated with a decrease in the production of goods and services and a decrease in their sales. This is because when the economy is in a downturn, people tend to spend less, which in turn leads to lower sales and production.
- Increase in unemployment: When the economy is in a downturn, businesses tend to lay off workers, leading to an increase in unemployment. This results in a decrease in consumer spending, which further exacerbates the economic downturn.
- Decrease in investments: A decline in GDP is also associated with a decrease in investments. This is because investors are less likely to invest in an economy that is in a downturn, as they perceive it to be risky.
- Decrease in government revenue: When the economy is in a downturn, government revenue also tends to decrease. This is because people tend to pay fewer taxes, and the government has to spend more on welfare programs to help those affected by the economic downturn.
All of these factors contribute to a decline in GDP, and they are usually reflected in the official economic data released by the government or other organizations.
What’s The Issue?
According to a major UN agency’s Monday forecast, India’s economic growth will slow to 5.7% this year from 8.2% in 2021 due to increasing financing costs and lower public spending The Trade and Development Report 2022 from the United Nations Conference on Trade and Development (UNCTAD) predicts that India’s GDP would continue to slow down, reaching 4.7% growth in 2023. India had the strongest growth among the G20 nations in 2021, with an increase of 8.2%.
The report stated that as supply chain problems subsided, domestic demand increased, turning the current account surplus into a deficit, and GDP slowed.
It was noted that although the government’s Production-Linked Incentive Scheme is encouraging corporate investment, growing fossil fuel import costs are widening the trade deficit and reducing the ability of foreign exchange reserves to pay imports.
“GDP growth is projected to slow to 5.7% in 2022 as economic activity is hampered by higher financing costs and weaker public expenditures,” it said.
The government has stated that it will expand capital spending in the future, particularly in the rail and road sectors. However, with the global economy deteriorating, policymakers will be under pressure to minimise budget imbalances, which could result in decreased spending elsewhere.
According to UNCTAD, the region of South Asia would grow at a rate of 4.9% in 2022 as inflation rises as a result of high energy costs, worsening balance of payment problems and prompting many countries (including Bangladesh and Sri Lanka) to cut back on energy usage. According to UNCTAD, the region’s growth rate would slightly slow down to 4.1% in 2023.
The US restriction on oil imports from Russia and the banning of shipping insurance for Russian oil exports, among other events following Russia’s invasion of Ukraine, have increased pressure on oil markets, it was said.
The release of 180 million barrels from the United States’ strategic petroleum reserves, as well as China’s and India’s preparedness to accept Russian oil exports, were sufficient to prevent a further tightening of the world’s oil supplies, the report added.
According to the research, the global economy is currently experiencing cascading and escalating problems, with earnings in many major economies still below 2019 levels, following a quick but uneven rebound in 2021.
The US economy is expected to increase by 1.9% in 2022, down from 5.7% in 2021, and by 0.9% in 2023, according to UNCTAD’s projections. In contrast, it is anticipated that China’s economic growth would be 3.9% in 2022, down from 8.1% in 2021, and 5.3% in 2019.
According to the report, 38% of China’s and Egypt’s imports are commodities, while more than 50% of India’s imports—including food and fuel—are (primary) commodities.
Higher commodity prices consequently have a significant impact on domestic prices through imports. A 50% increase in oil prices (about the increase in 2021) is thought to be accompanied by an increase in inflation of between 3.5 and 4.4 percentage points, with a lag of about two years, according to recent projections spanning the past five decades.
These results imply that increased commodity (oil) prices have contributed significantly to inflation in developing nations as well as established economies in 2021–2022, it stated.
It also noted that certain emerging economies saw bigger public budget deficits as a result of increased spending on social protection and decreased tax collection in the wake of the pandemic. In Mexico, government deficits in 2020/2021 were 4.5% (4.2% of GDP), while in India, they were 12.8% (11.3% of GDP).
