http://www.economist.com/news/britain/21573132-britains-squeezed-households-largely-explain-countrys-flatlining-economy-dropping-shopping
This article describes the current economic situation in Britain, and discusses the relationship between consumer spending and economic growth. It starts by pointing out that consumption is by far the largest component of GDP, accounting for 63% last year. During the recession, consumption has declined due to the inflation rate rising faster than the wage rates. This causes real income to fall, and with less disposable income, consumption will fall as well. In addition, consumers are saving at a relatively high rate, meaning MPC is lower and they are spending less. Though some forecasters are predicting a growth spurt in the future, it is difficult to tell when this will happen.
If these trends continue to occur, consumer confidence will also decline. If so, Britain will have a very hard time getting the economy to move forward with such little consumer spending and confidence.
ReplyDeleteThe consumer confidence index can be, from time to time, a useful predictor of consumption. Consumption expenditure increases can be explained by the level of consumer confidence reflected in the household surveys carried out in numerous countries. It is imperative to keep in mind that consumer confidence has the greatest impact on consumption levels but other factors such as income, unemployment & inflation are also important in predicting economic outcomes, so I completely agree with your statement in saying that it is difficult to tell when this growth spurt will occur. All of these variables need to be taken into consideration.
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