Macroeconomics in 2010 Newspaper Articles

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Recovery harder in this recession

The article under consideration is titled “Recovery harder in this recession,” written by Howes (A16). The article has its basis on the recent global financial crisis, which started in the United States and spread to other parts of the world. The author argues that Michigan is showing signs of recovery from the recession, which include: increased employment opportunities by the private sector, increased levels of consumption by consumers, record profits by car makers such as Detroit’s, and giving of donations by companies. All these are signs that the economy is slowly on the recovery path. Nevertheless, the author argues that these signs are minimal, and it will take quite a while before the tangible signs of recovery are witnessed. The discussion is based on the automaker’s industry.

Giving an example of General Motors, the article argues that although the company is doing well and its assets were protected from bankruptcy, the management is wary of any action that would raise the firm’s costs, such as mass employment. The company is thus doing its best to minimize its costs, as much as possible. It is because the Michigan state was badly affected by the recession in that its gross domestic product fell by 5.2 percent compared with the nation’s decline of 2.1 percent.

Because Michigan is known for its automaker’s industry, the industry was also adversely affected, and, thus it would take time for it to be where it used to (if ever that will happen) before the recession set in. This argument is true because for a country to recover from a recession, it would require higher rates of consumption, savings, and government spending than initially, and this may take a while to be realized.

Moscow must cut the deficit or face inflation

The article is titled “Moscow must cut the deficit or face inflation, says IMF,” written by Clover (3). The International Monetary Fund argues that Russia needs to invalidate the stimulus package it provided during the global economic recession. Without reversing the stimulus, the IMF thinks that the country will experience stagnated growth and high rates of inflation. The Funds argues that the non-oil budget deficit of Russia increased tremendously due to an increase in government spending vis-à-vis its revenue. The expenditure was mainly in form of pensions, which increased by 4.5 percent of the country’s gross domestic product between 2009 and 2010 and which were given due to high unemployment rates to stimulate the economy and stabilize the country’s political climate.

The challenge with Russia’s stimulus package is that it is a permanent commitment made by the government, and it, therefore, cannot be reversed easily. The only solution is thus to cut down on government spending in other sectors of the economy, but such cuts should not affect the country’s growth potential.

On the monetary side, the Funds proposes an increase in interest rates by the monetary authority to reduce the high inflation rates, which were caused by high food prices and lenient monetary policy. This news article thus talks about the role of fiscal and monetary policy in economic growth and development. Fiscal policies are actions taken by the government (mainly through spending), while monetary policies are actions taken by the monetary authority to control the economic activities of a country.

Robust industry growth halts 3-day market slide

The article is titled “Robust industry growth halts 3-day market slide,” written by Indian Express (1). The news article argues that India’s industrial output increased to 10.76%, the highest growth rate in the last three months. It is attributed to an increase in manufactured goods and power generation. This growth in industrial output led the policymakers and top economists in the country to believe that the country’s industrial growth will increase to about 10 percent the entire year.

The increase in industrial output in India was mainly caused by growth in power generation, which grew to 8.78 percent in October from a low of less than 2 percent in the previous two months. Second, the manufacturing sector contributes to 80 percent of India’s industrial output. This sector grew to 11.3 percent in October, thus leading to high industrial growth.

The article further argues that the country’s first-half GDP growth rate of 8.9 percent together with the high industrial growth rate will motivate the monetary authority in India – the Reserve Bank of India – to lift the temporary pause on monetary tightening. What this implies is that the RBI had embarked on an expansionary monetary policy in which it had lowered the interest rates of borrowing to increase the money supply in the country and thus spur the country’s economic growth. It is what resulted in the impressive industrial growth in October. To lift the temporary pause on its monetary tightening, the RBI will have to raise the interest rates on borrowing to control the money supply in the country.

Spain acts tough on debt, but investors say ‘situation could get ugly’

The article under consideration is titled “Spain acts tough on debt, but investors say ‘situation could get ugly’” written by Cal (1). Spain is the fifth-largest economy in Europe. However, due to the global financial crisis, the country has experienced stagnated growth and high unemployment rates. At 20 percent, Spain’s unemployment rate is the highest in the European Union. The European Union and other international financial institutions have offered to help Spain out of its economic misery, but the country has refused any financial assistance.

Specifically, the government of Spain is adamant that it will control its budget deficit on its own. What does this imply? It implies substantial cuts in government expenditure at a time when the economy has stagnated, and unemployment rates are high. Major spending cuts have been proposed on publicly funded goods and services, including cuts in unemployment benefits. On the other hand, the government is seeking ways of raising its revenues through measures such as increases in tobacco taxes and increased taxes on small and medium-sized businesses.

The result of these two measures (decreases in spending and increase in revenues) is a reduction in the budget deficit. Indeed, the budget deficit has decreased by 2 percent since the government started implementing these measures. Based on the national income model in which Y = C + S + G + (X-M), it only means a decrease in government expenditure will worsen the economic situation of Spain. The economic situation of Spain is of concern to a member of the euro-zone. Because members of the zone, mainly Greece and Ireland, were rescued from their economic crises, it only means that a similar bailout on Spain would weaken the euro currency.

It is one of the major challenges facing economic integration with a common currency. The instability of the economy of the members almost always translates into a threat to the stability of the entire region and its common currency.

Autos boost European markets

The article under consideration is titled “Autos boost European markets” written by Wall Street Journal (Online) (1). The article mainly talks about stock markets. It begins by stating that Europe’s major markets closed high last Friday because of the increase in the shares of the automakers. On the negative side, banks performed poorly during the same period. The performance of the European market (with an increase of 0.1%) was the highest in four months, and this performance was steady for four days running. The article also refers to the USA stock markets and claims that the American stocks also performed well during the same period.

This performance is mainly attributed to increased consumption on the part of the consumers and increased confidence on the part of investors. At the same time, the trade deficit of the United States narrowed significantly in October. What this implies is that there was an increase in the value of exports and a decrease in the value of imports which in turn led to a decrease in the trade deficit. Whereas the stocks of the automakers’ industry increased, the stocks of the banking industry performed poorly within the European markets.

The poor performance of the banks’ stocks was a result of an announcement made by the Committee of European Banking Supervisors, which restricted the amount paid to the top earners. This article, therefore, shows that the performance of stock markets relies heavily on information and the confidence levels of the investors.

The Obama stimulus impact? Zero

The article under consideration is titled “The Obama stimulus impact? Zero,” written by Cogan and Taylor (13). The recent global financial crisis led many governments across the globe to implement economic stimulus programs, Obama’s Administration being of them. Many economists have made arguments about the effectiveness of such stimulus packages. It is based on these arguments that the authors of this article make their case.

One of the major driving forces of Obama’s stimulus package is an increase in government purchases. One of the major assumptions of the Keynesian theory of economic growth is that government purchases of commodities and services increase the economic activities of a country beyond the quantity of the actual purchase. Nevertheless, “the effect of such a move on the economic growth (measured by the growth of GDP) depends both on the dollar volume of the government purchases as well as the size of the government purchase multiplier, (Cogan and Taylor 13).

Thus, “even though the size of the government purchase multiplier in the USA has been large, the dollar volume of the government purchases have been minimal” (Cogan and Taylor 13). Specifically, between January and September of 2009, government purchases increased by only 3% ($24 billion), while government spending in the infrastructure sector increased by only $4 billion. Given that the size of the USA economy is $14 trillion, these increases in purchases and spending are minimal to have any significant effect on the economy.

The effect of government purchases has further been hampered by the fund’s transfer strategy employed by the Obama Administration. Therefore, irrespective of the size of the government purchases multiplier, the net effect on the economic activity has been negligent.

Economic growth will slow in 2011

The article under consideration is titled “Economic growth will slow in 2011, IoD says; Institute of Directors in Wales predicts 1.2% growth” written by Evans (30). Following the recent financial crisis and economic meltdown witnessed across the globe, the economic outlook in the past few months has been somewhat positive with increases in economic activity. In this article, the author reports on the assertions made by the Institute of Directors (IoD) in Wales in which it has been claimed that the forces driving the economic recovery are facing powerful decelerating forces. The IoD thinks that there is a great risk of economic slowdown, especially if the confidence of the consumers and businesses falls.

The forecast of the economic growth is of the nature of a square root in which the growth experienced this year is set to stabilize. Specifically, it is expected that in some quarters the growth will be normal, while in others the growth will level off. If this was to happen, the government of Wales would be forced to take stringent fiscal measures such as reducing spending or increasing taxes to reduce its budget deficit. Recall that the budget deficit is the difference between the government revenues and government expenditures in which the expenditures are higher than the revenues. Thus, for the government to reduce the deficit it must either reduce its expenditure or increase its spending.

Resources key to wealth; oil and gas report out

The article under consideration is titled “Resources key to wealth; oil and gas report out,” written by Maetzig (7). Taranaki is a region in New Zealand that has been described as having the greatest potential for economic transformation. It is because although the region has a low population and business base, it has a booming oil and gas industry, which is capable of not only transforming the region but also entire New Zealand.

It is because natural resources play an important role in enhancing the economic activities of a nation. To begin with, natural resources attract foreign investors who come to invest in the country, thus accelerating the country’s economic growth. This relationship is not entirely direct but has many underlying factors. Foreign investors help to establish businesses, thus increasing the country’s business base.

Most importantly, foreign investment increases the employment opportunities of a region, which in turn increases the income per capita and consumption levels, which in turn contributes to the GDP growth. The development of natural resources such as oil and gas increases a country’s exports, which in turn reduces its balance of payments deficits and ultimately increases GDP from the proceeds earned. Given these benefits of natural resources, it is unfortunate that New Zealand’s government has not given much importance to the sector as it has done to sectors, such as the dairy and tourism sectors. The sector thus needs to be developed for the country to gain economic benefits from it.

Inflation tops agenda of the economic meeting

The article under consideration is titled “Inflation tops agenda of the economic meeting,” written by Zhang (5). The article is about a conference organized by the government of Mainland in which inflation was set at the top of the agenda. There has been a high inflation rate in China, as well as money supply. Worries about the high inflation rate became apparent when the monetary authority increased the reserve requirement for the commercial banks the third time in a month.

This measure is a contractionary monetary policy that is usually used by countries’ monetary authorities to control the level of money supply in the countries. If the supply is high, prices of goods and services go up, thus raising the rate of inflation. A rise in the reserve requirement reduces the money supply because banks are left with a lower level of liquid cash to lend to the public. Besides the issue of inflation, the conference is also meant to address other economic issues facing China, such as economic stabilization, narrowing the rich-poor gap, economic reform, market liberalization, and protection from uncertainties in the global market.

These issues are a headache to economists in all parts of the globe especially because of the increased globalization of economies which has in turn increased the risk of uncertainties. Thus, most economists wonder about opening their markets and at the same time protecting their economies from threats that come with globalization. It is one of the major reasons as to why the financial crisis in the USA spread so quickly to other parts of the globe within a short period. It is because economies and markets nowadays are inter-linked, therefore, what affects one economy is highly likely to affect other economies unless governments implement protectionist policies.

GDP stats confuse; annual comparative figure leaves the USA ahead

The article under consideration is titled “GDP stats confuse; annual comparative figure leaves the USA ahead,” written by Shilson-Josling (119). This article mainly talks about the comparison made between the economic growth rate of the United States and Australia. The USA economy has been described as a weak economy, whereas the Australian economy has been described as a strong economy.

According to the Australian Bureau of Statistics, the real GDP in the country grew by 2.7% between January and September of this year. Within the same period, the real GDP in the U.S grew by 3.2 percent, according to the U.S Bureau of Economic Analysis. It is where the confusion of the data comes in. It is because the Australian economy has been performing well even since 2006 and before the sub-prime crisis hit the U.S.

Indeed, between 2006 and 2010, the Australian economy has grown by slightly over 10% whereas, in the U.S, the economy has grown by 1.7% within the same period. It thus does not make any sense to say that the U.S GDP was higher than that of Australia between January and September of this year. The reason is that the U.S. was more affected by the financial crisis than Australia and, therefore, it has a long way to go before it can catch up with Australia.

The differential effect of the crisis on the two economies lies in the economic focus of the two countries. The U.S. has a large financial sector that is largely liberalized, and from which the crisis originated. On the other hand, the financial sector of Australia is largely regulated, and hence it was not hard hit by the crisis. Secondly, Australia has an active minerals sector, which has experienced a boom in the recent past. It, therefore, goes without saying that the Australian economy is much stronger than the U.S. economy.

Works Cited

“Autos boost European markets.” Wall Street Journal (Online). 2010: 1.

Cal, Andres. “Spain acts tough on debt, but investors say ‘situation could still get ugly.’” The Christian Science Monitor. 2010: 1.

Clover, Charles. “Moscow must cut deficit or face inflation, says IMF.” Financial Times. 2010: 3.

Cogan, John, and John Taylor. “The Obama stimulus impact? Zero.” Wall Street Journal. 2010: 13.

Evans, Rhodri. “Economic growth will slow in 2011, IoD says; Institute of Directors in Wales predicts 1.2% growth.” Western Mail. 2010: 30.

Howes, Daniel. “Recovery harder in this recession.” Detroit News. 2010: A16.

Maetzig, Rob. “Resources key to wealth; oil and gas report out.” Taranaki Daily News. 2010: 7.

“Robust industry growth halts 3-day market slide.” Indian Express. 2020: 1.

Shilson-Josling, Garry. “GDP stats confuse; annual comparative figure leaves US ahead.” Sunshine Coast Daily. 2010: 119.

Zhang, Ed. “Inflation tops agenda of economic meeting.” South China Morning Post. 2010: 5.

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