Elizabeth Makhafola Director elizabethma statssa. Malibongwe Mhemhe Director malibongwem statssa. Michael Manamela Chief Director michaelm statssa. Bontlenyana Makhoba Chief Economist bontlenyanam statssa. Litshani Ligudu Director litshanil statssa. Gerhardt Bouwer Chief Director gerhardb statssa.
Riaan Grobler Director riaang statssa. Hlabi Morudu Chief Director hlabim statssa. Nicolai Claassen Director nicolaic statssa. Keshnee Naidoo Director keshneen statssa. Joyce Essel-Mensah Director joycee statssa. Sagaren Pillay Chief Director sagarenp statssa. Amukelani Ngobeni Director amukelanin statssa. In turn, those businesses borrow money from banks, and those banks produce money through the fractional-reserve system. So when businesses are willing to invest, there is more debt created, thereby expanding the aggregate money supply in the economy.
This can create an inflationary effect which can positively impact consumption as the money filters through the wider economy. By contrast, when businesses reduce investment, the money supply declines, meaning there is less cash floating around the economy. In turn, this can have a depressive effect on the economy as fewer people have less cash to spend on goods. So when the money supply increases, there is more money for consumers to spend.
However, this must first come from businesses investing more. In effect, if businesses do not invest in more jobs, factories, or offices, there is less money for consumers to spend. As part of GDP, it includes capital goods, which are assets such as machinery and manufacturing equipment. However, they differ from consumer goods because they are used to create them.
In other words, anything that can be used to provide something the consumer can buy, can be classified as a capital good. In turn, they are classified as an investment. Thus, some would class this as consumption.
For instance, if you buy a house, surely it is a consumer product? However, it is classified as a capital good. Why so? Well, first of all, it provides a service: housing. If we look back at what a capital good is; it is an asset that is used to produce an output. In the case of housing, it is used to produce a housing service.
For example, you may buy a house and rent it out. In turn, the consumer that rents the house is acquiring the housing service. Therefore, the house is an asset that is providing a service. Housing can be seen in two stages. To begin with, housing undergoes construction. Once purchased, the cost excluding the land value is added to Investment as part of GDP. At this stage, the house is an asset. In turn, when rented out, this is classed under consumption in GDP. As a percentage of GDP, Private Investment is generally the third biggest contributor after consumption and government spending.
When investment starts to decline, it shows that the productive capacity of the nation is stagnating. As businesses invest in order to increase efficiency and reduce unit costs, a decline in such will signal a slow down in economic progress. When businesses reduce their investment, it shows that there is uncertainty about future demand.
This turns into a Catch 22 situation whereby businesses are worried about future demand, so reduce investment. In turn, this reduction in investment impacts on the wider economy. Less aggregate demand from businesses means there is less overall demand as well. Lower levels of demand from businesses mean there is less demand for other goods in the economy such as industrial machinery.
So the jobs that were previously reliant on continued business investment are likely to no longer be needed. Those who worked on producing industrial machines are put out of work, which in turn, means they have less income to spend on other goods in the wider economy. As a result, the initial reduction in business confidence about future demand becomes a reality.
Investment is important because it is the true engine of economic growth. Without it, businesses would not be as efficient as they are today. If businesses did not invest in new machinery or new factories, employees would be much less productive. For example, the investment in technological innovation in agriculture revolutionised the world. Investment in equipment such as combine harvesters and seed drills have saved farmers millions of hours that they can use to expand production.
Rather than harvesting one bag of grain, the farmer can harvest ten. The initial investment has allowed the farmer to increase production and its efficiency — thereby allowing for those resources to be used elsewhere in the economy. As part of GDP, government spending simply includes everything the government spends money on — with the exception of transfer payments. It excludes any payment to the public such as social security, housing benefit, or unemployment benefit.
The report goes on to state:. Effective mitigation is expected to see the global economy recover to 3. However, a longer-lasting coronavirus outbreak and spread, especially throughout the Asia-Pacific region, Europe and North America could see global GDP:.
The largest and best-run companies in these countries will be among the biggest beneficiaries of long-term economic expansion. Most nations release GDP data every month and quarter. In the U. The BEA releases are exhaustive and contain a wealth of detail, enabling economists and investors to obtain information and insights on various aspects of the economy. The advance GDP data has the most impact on the markets as it is the first snapshot of how well the economy is performing.
Subsequent releases have limited market impact, unless there is a significant variance from the advance GDP figure, since a substantial amount of time has already elapsed between the quarter-end and these releases. The market impact can be severe if the actual numbers differ considerably from expectations. GDP had increased at a 2. The data fueled speculation that the stronger economy could lead the Federal Reserve Fed to scale back its massive stimulus program that was in effect at the time.
One interesting metric that investors can use to get some sense of the valuation of an equity market is the ratio of total stock market capitalization to GDP , expressed as a percentage.
The closest equivalent to this in terms of stock valuation is the market cap to total sales or revenues , which in per-share terms is the well-known price-to-sales ratio. Just as stocks in different sectors trade at widely divergent price-to-sales ratios, different nations trade at stock-market-cap-to-GDP ratios that are literally all over the map.
For example, the U. However, the utility of this ratio lies in comparing it to historical norms for a particular nation. As an example, the U.
Given the rise in the U. In terms of its ability to convey information about the economy in one number, few data points can match the GDP and its growth rate. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.
More than two dozen low-income countries, where natural capital dominates the composition of wealth, have moved to middle-income status, in part by investing prudently in natural resources, infrastructure, and education. However, not everything is rosy, including a decrease in the value of productive forests and declining or stagnating per capita wealth in more than two dozen countries. The world is still unequal when seen through the lens of wealth. High-income OECD countries hold 52 times more wealth per capita, measured at market exchange rates, than low-income countries.
More than two dozen countries saw their per capita wealth decline or stagnate. Declining per capita wealth implies that assets critical for generating future income may be depleted, a fact not often reflected in national GDP growth figures. This included several large low-income countries, some carbon-rich countries in the Middle East, and a few high-income OECD countries affected by the financial crisis.
But higher population growth in many low-income countries means that, in those countries, per capita wealth often grew at a slower pace than the global average. This is particularly true for Sub-Saharan Africa, where the needle on wealth per capita did not move much since Human capital accounts for two thirds of global wealth, the largest chunk of wealth. Human capital is computed as the present value of future earnings for the labor force, factoring in education and skills as well as experience and the likelihood of labor force participation at various ages.
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