Gross domestic product or GDP, also known as gross domestic income (GDI), measures national income and output of an economy of a country. It measures total market value of goods and services in a given time. GDP growth rate is percentage increase or decrease in GDP from earlier measurement cycle. Growth rate is annualized for ease of comparing it to previous year’s rate.
GDP growth rate
GDP growth rate is determined by exports, government spending, retail expenditures, and inventory levels. Growth can be negatively affected by increase in imports. Rate of growth is one of most important indicators reflecting a nation’s economic health. If there is growth in GDP, there will also be growth in personal income, business, and jobs.
With a decreasing GDP growth rate, businesses will stop new recruitment and investing in new purchases till economy improves. But this can further reduce GDP and there will be less money with consumers to purchase. If GDP growth rate becomes negative, then US economy is moving towards a recession. Growth rate can affect stock markets as investors get information about a country’s economic health.
Growth rate trends
GDP components of US comprise 70 percent of personal consumption products, 16 percent is business investment, and 19 percent is government, of which defense accounts for one third.
Perfect GDP increase is neither too fast to create inflation nor too slow to create recession. A growth rate of 2-3 percent is considered ideal by most economists. American economy was within this range till 2007. In 2003, annual rate was 2.5 percent, in 2004 was 3.9 percent, 2005 was 3.2 percent, 2006 was 2.8 percent, and in 2007 it was 2.0 percent. In 2007, quarterly growth rate dropped and turned to negative in fourth quarter.
India’s GDP growth rate slowed down to 7.8 percent in first half of fiscal year 2008-2009. In July-September 2008, Indian economy grew 7.6 percent which was lower than 9.3 percent rate achieved last year in same quarter. Prime Minister’s Economic Advisory Council member Govinda Rao predicts consolidated GDP growth rate will be about 7 percent in 2008-09.
Growth rate in manufacturing has halved to 5 percent in second quarter, while agricultural growth is down to 2.7 percent from 4.7 percent. These may be warning signs for the economy but there are positive signs too. Investment rate stood at 35.3 percent which is higher than 33.4 percent achieved last year, same quarter.