Academics love arguing about GDP, and how useful it is in measuring the health of a nation’s economy. Economists, sociologists, historians, philosophers; each seems to have its own unique view on GDP, and how useful it is, with many arguing it leaves out factors such as cost of living, the success of government policy and various other issues for other articles at other time. Many use GDP to decide whether a country is wealthy or not, as the gross domestic product of the country, but is often left disproportionate to the average wealth of the everyday people.
On the subject of GDP, in November of last year (2021) it reached the pre-covid levels. To an extent, this is unarguably good news, suggesting the economic damage of covid might not be as devastating as previously feared. Good GDP levels also inspire consumer confidence, and it seems that as people adapt to life with the virus, they have felt increasingly willing to part with some of their hard-earned cash, and now this should mean consumer investment in the economy again goes up.
Some feared that the withdrawal of government financial help for businesses would lead to a recession, with people being unwilling to go out and spend, and workers having to be let go. Good GDP is good for businesses and may prevent this from happening. What is good for businesses is generally good for the economy as a whole, and the chain of reasoning suggests that this economic growth may allow for the government to begin repaying the over two trillion pounds worth of debt it has amounted.
Unfortunately, economic growth does have negative side effects, such as rising inflation, which is already almost one per cent higher than the targeted position. With an energy cap rise of fifty per cent predicted, this rising inflation will mean those on fixed incomes, such as those reliant on state pensions and welfare benefits will have reduced purchasing power. As pensioners are considered key to the high street economy, it is likely yet more high street stores will continue to close, although they were already in some state of decline.
Some businesses may therefore take the step to reduce their current stock either in quality or remove stock altogether. Doing this would again hurt the poorest of the poor, and possibly plunge even more into poverty. This suggests that whilst GDP may suggest a recovering economy, the economic decline may be just around the corner, and tough times may lie ahead for those most in need. More people in poverty may also force the government to increase its spending, money which should be being spent trying to eliminate the humongous debt.
Furthermore, economists fear that this recovery may be fragile. With the Omicron variant now doing its demonic tango across the UK, the economy, struggling with workers now catching the virus at high speeds, may again lead to GDP falling again. Considering markets respond well to strength, and strength and fragility being polar opposites in terms, it is easy to see the effect this perception may be having on our nation’s economy. In politics and economics, perception is as important, often, as the detail itself.
Written by Adam Caudle