October 21, 2018

What is negative growth?

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During the past turbulent five years many countries have experienced a reduction in Gross National Income (other terms used are Gross National Product or Gross Domestic Product). The big Western economies such as US and Germany were particularly badly hit in 2009 with significant reductions in GNI. Of course, the economies of countries such as India and China have not contracted but have carried on growing at a lower rate than before. Today (October 25) the British media is full of speculation that the UK is going to emerge

English: World GDP growth rate and GDP growth ...

English: World GDP growth rate and GDP growth rate of total OECD countries. Data source: World Bank Group and OECD. (Photo credit: Wikipedia)

from ‘negative growth’ to ‘positive growth’. I have taken a straw poll of business colleagues and posed the question: ‘What does negative growth in national income mean?’ The answers are alarming in the sense that such a simple question reveals a great deal of ignorance about the world round us. Answers included ‘Lower growth than last year’, ‘Reduction in the rate of growth’, ‘Manufacturing output less than service output’ (work that one out), ‘Imports are greater than exports’. Only two of the eleven business people got it right.

So the lesson is, if you are discussing quantitative issues with business people do not assume that they know what you are talking about. Always be careful to define your terms.