Professional Documents
Culture Documents
Economics 2018
Economics 2018
policy making
Indrajith Aponsu
Department of Economics
University of Colombo
In global context
Asia poised to faster economic growth @ 7%+
Current account surplus to continue
Inflation remain well contained
Prospects for capital flows look good
Risk due to a more than expected slowdown in US
Higher oil prices can hamper growth prospects
Inflation will result due to high costs and financial
volatility
Rapid growth in China, later India, provide mixed
blessings for the region
Regional Economic Outlook, IMF
The stories continue…..So, what do
we do ? ……
Different from the tele-stories, as we need to
analyse and act.
Others sure will, even if I ignore
Right understanding gives the edge
Globalisation has opened a Pandora’s box
Internet, new space age for all Toms, Dicks,
and Harrys
The one with the right information is on a time
travel
More specifically,
Why economics information?
Commonly,
Or simply,
BOP status
Labour exchange rate
(Knowledge+Skills+Knowhow+…)
Demand stability
Fiscal measures
and income gaps
Public debt
Leading-
Indicates before hand likely changes-
Stock market with growth
Stock indices falter when GDP growth begins to decline
Falling reserves indicates X rate under pressure
Lagged
Happens with a delay
Unemployment improves only sometime after a recovery
Rising interest rates chokes growth
Selected Indicators - Economic
The rate of growth of GDP
The rate of growth of per capita GDP
The rate of unemployment
Corruption
Indicators- another perspective
Outcome Indicators -
Input Indicators
Aggregate Indicators
Life Expectancy
Life Satisfaction
Ecological Footprint.
Selected Qualitative Indicators
Process Indicators
Indicators of good governance
Transparency
Accountability
Non- Discrimination
Equity
Inclusivity
Participation
Critical Indicators
Gross Domestic Product or GDP
Large GDP means Hippos- big bullies, slow moving, with big tummies
Small GDP means more likely to be piggy backers,
can be fast moving Cheetahs, or be strategic minded Beavers,
Key is making the looks attractive to the hippos
Real GDP is what we look for
Real GDP eliminates value illusion caused by price
changes
Measures the actual output generation in value
terms
In practice, only real GDP is relevant for the
size
all analyses begin with GDP data
Real Growth (also called Growth)
Most vital is the Rate of Growth in GDP
It reflects the vitality of the GDP
US grew @ nearly 5% during 1990-2000 ( exceptional)
Developing countries should achieve faster growth (used to be
public savings
Reflects what has not been consumed from the
domestic production ( but, does not reflect what is
available)
National Savings ratio – Savings adjusted for net
inflows/ GDP
what is available within the economy
Asians command high levels of savings
Finance related indicators
Narrow Money supply- M1
Cash and demand deposits in circulation
growth
Raising investment is a relaible forecast for faster
growth
Very cyclical in nature ,a dn quite sensitive to growth
Government revenue
higher revenue gives more flexibility
more tax on the private sector
Deficit
The means of financing has implications
Size of it too
Reduction of defcit too have implications
Finance with the rest of the world
Terms of trade
Price of imports in terms of that of locally produced
Deteriorating TOT is a sign of exchange trouble and
Sign that Foreign exchange is leaking out
Trade balance as % of GDP
Exports minus imports
Usually, as a proportion of GDP
Widening trade balance is bad as country is
overspending
Assets and liabilities to the rest of
the world
Capital account balance as % of GDP
current account deficit is financed from
surplus in capital account
More capital inflows means rising liabilities
Nevertheless, we borrow and invite FDIs
Linked rates
• Currency rate is fixed , but market operates freely
• Currency Board for the HKD
Millenium Development Goals