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Introduction
For citizens to live a better life and enjoy high incomes their country has to present a positive economic growth. Such growth is estimated through calculations of both income and output. The growth of the latter is important for income growth. Gross domestic product is therefore the measure of the two aforementioned components of income and growth. Per capita GDP accrues when such gross domestic product is divided among a nation’s population. Higher per capita GDP is always associated with better living standards characterized by improved health and medical services, proper diets, better educational services as well as longer life expectancy (Gwartney, 2006, 359). Different nations have different GDP growth rates depending on such factors as general economic productivity which may be affected by economic, legal and political environments prevailing in a country. Moreover, the economic freedom enjoyed by a state and the size of the government among other factors may also influence the nation’s economic productivity (Gwartney, 2006, 359). Besides, a nation’s rate of expenditure also affects the growth rate of its annual GDP. Countries with higher spending of their GDP have lower growth rate of GDP as exemplified in Italy and USA where the former state recorded an annual GDP growth rate of 1.5% while the latter had an annual GDP growth rate of 2.9% between 1999 and 2003. Italy recorded a 48.3% annual spending of its GDP while USA had an estimated 34.6% annual spending of its GDP in the same period (ONS, 2004, 16).
Due to the aforementioned reasons, different nations have recorded varied growth rates in their gross domestic products. The table below shows the annual percentage figures as recorded during the period between 1999 and 2003.
GDP growth rates (%) Germany USA Italy Japan
1999 2.0 4.8 1.7 0.9
2000 2.9 4.1 3.0 3.0
2001 0.8 1.1 1.8 1.2
2002 0.1 2.8 0.4 1.2
2003 -0.1 2.5 0.3 2.0
Diagrammatic representation
EMBED MSGraph.Chart.8 s
The UK has witnessed quarterly fluctuations in the growth rate of its GDP between the period of 2001 and 2003. The percentage changes in the growth rate of real GDP in the nation were unstable but generally improved between the aforementioned time periods. For instance, the rates increased to 1.0% in the last quarter of 2003 compared to the 0.9% in the previous quarter (ONS, 2004, 5). The quarterly data on the growth rate of the real GDP in the UK is shown in the table below.
Period Real GDP growth rate in UK (%)
2000 Q1
1.2
Q2 0.7
Q3 0.7
Q4 0.4
2001 Q1 0.8
Q2 0.5
Q3 0.3
Q4 0.4
2002 Q1 0.3
Q2 0.4
Q3 0.9
Q4 0.3
2003 Q1 0.3
Q2 0.7
Q3 0.9
4Q 1.0
Diagrammatical representation
EMBED MSGraph.Chart.8 s
Generally, money plays a pivotal role in almost every sector of the economy. The amount of money should therefore be established in an attempt to forecast on any activity in the financial market (Millineux, 1996, 2). For instance, such aggregates can be used to forecast on potential inflation in an economy. Monetary aggregate trends have displayed similar behavior globally in the recent past and some suspicion has risen on the possible cause of such behavior. For instance, it has been suggested that global liquidity may be a cause to such behavior. The growth of M4 in UK was attributed to a variety of factors including economic growth as well as precautionary savings. The narrow monetary aggregate as well as broad monetary aggregates in the UK between 1999 and 2003 are shown in the table below (ONS, 2004, 128).
Monetary Aggregates 1999 2000 2001 2002 2003
MO 8.3 7.1 4.8 7.9 7.5
M4 5.0 7.4 7.8 6.3 7.2
Diagrammatic representation of MO and M4 EMBED MSGraph.Chart.8 s
Gross capital formation in the UK.
Period Gross capital formation in UK
2001 Q1 13.3
Q2 13.4
Q3 13.6
Q4 13.0
2002 Q1 12.7
Q2 12.5
Q3 13.1
Q4 13.4
2003 Q1 12.7
Q2 12.5
Q3 13.0
Q4 13.2
Diagrammatic representation
EMBED MSGraph.Chart.8 s The increase in the trade deficit in the UK between 1999 and 2003 is partly as a result of poor performance in the trade in goods and/or service as well as unfavorable investment income during the stated time period (McEachem, 2008, 539). As a result of the aforementioned issues, export might have decreased thereby subjecting the country into economic jeopardy. There is a possibility that such unfavorable trade may also result from poor performance of the sterling pound against the US Dollar. The currency is therefore unable to compete effectively against recognized currencies globally (McEachem, 2008, 540). The local companies can not compete against their partners in the global market given the aforementioned reason. However, the decline in the deficits after 2003 may be attributed to a variety of factors including the improved performance of the sterling pound, increase in surplus of goods, increase in both exports as well as imports among other factors (McEachem, 2008, 540).
The economy of USA grew by a value of 3.1% in 2003 thereby outdoing all the other large economies including France, Germany, Italy as well as UK. The business activities in the country have performed moderately well compared to the other nations and the trend seems sustainable given the steady performance witnessed in 2004 (OECD, 2004, 28). Unemployment rate however increased from 4% in 2000 to settle at 6% in 2003. This later subsided in 2004 to constantly remain at 5%. Germany however witnessed a quarterly increase of 0.3% in the employment rate between the second and third quarter of 2003 as well as 0.6% between third and forth quarter of the same year. Other contributing factors to the high performance of US are the increase in the fixed investments by 1.6% as well as government expenditure which added about 0.4%. France too witnessed growth in 2003 due to increase in the household consumption as well as government expenditure which contributed to 0.9% and 0.6% respectively to the GDP.
Both Germany and Italy have witnesses decline in their GDP growth rate from 2002. Unlike US which recorded an expansion in the production index in 2003. Italy witnessed a weak index in production since 2001 with an almost nil economic growth rate in 2004. Moreover, the consumer price inflation has remained high both in Italy as well as France in the past few years up to 2003. This is attributed to the increase in the prices of agricultural products in both countries as a result of the heat wave that was witnessed in the last summer. Additionally, the producer inflation has weaker since 2000 compared to the consumer price inflation. Italy witnessed a steady unemployment rate of 9.0% in 2002 followed by a decline in the subsequent year to about 8.5%. UK on the other hand witnessed positive economic growth since 2003. This is attributed to the government and consumers spending. It also had a high rate of fixed investment in 2003 compared to the 2004 rate of 1.7%.
The US has shown commendable success in the market as it commands a larger share of the market imports. Moreover, the sound performance by the US in the market has continued to be stable in the recent past compared to the other aforementioned nations (OECD, 2004, 28).
Work cited:
Gwartney, James et al. Economics: private & public choice. 11th Ed. Florence: Cengage Learning. 2006. Print.
Hughes, Christopher. New research on politics and economics of Europe. New York: Nova Publishers. 2006. Print. p72
OECD. OECD science, technology, and industry outlook. New Milford: OECD Publishing. 2004. Print.
Office of National Statistics. Economic Trends: August Monthly supplement. London: the Stationary Office. 2004. Print.
Millineux, A.W. Financial innovation, banking, and monetary aggregates. HYPERLINK “http://www.e-elgar.com/chelt.lasso” Cheltenham: Edward Elgar Publishing. 1996. Print.
McEachem, William. Economics: A Contemporary Introduction. 8th Ed. Florence: Cengage Learning. 2008. Print.
