{"id":71903,"date":"2020-12-05T18:26:48","date_gmt":"2020-12-05T12:56:48","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=71903"},"modified":"2021-05-10T14:41:52","modified_gmt":"2021-05-10T09:11:52","slug":"economic-recovery","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/economic-recovery\/","title":{"rendered":"Economic recovery"},"content":{"rendered":"<p><strong>Context:\u00a0<\/strong>A recovery led by profits, at the expense of wages, has implications for demand, inequality and policy.<\/p>\n<ul>\n<li><strong>GDP is typically reported in two ways:\u00a0<\/strong>The sectoral, production side (agriculture, manufacturing, services) and the functional, expenditure side (consumption, investment, net exports).\n<ul>\n<li><strong>Third way:<\/strong>\u00a0On the income side, GDP is calculated as the sum of profits, wages and indirect taxes.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>Discuss the role of factors of production in economic recovery.<\/strong><\/p>\n<ul>\n<li><span style=\"color: #000000;\"><strong>Capital:\u00a0<\/strong>The <a style=\"color: #000000;\" href=\"https:\/\/forumias.com\/blog\/economic-recovery\/\" target=\"_blank\" rel=\"noopener\">economic recovery<\/a> in many parts of the world is too twisted for comfort, driven excessively by capital than labour.<\/span>\n<ul>\n<li>If listed company profits are growing at 25 per cent, and yet GDP contracted 7.5 per cent, it reveals significant pressure on profits of unlisted SMEs, wages and employment.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Labour market pressures around the world:<\/strong>\u00a0US hiring slowed sharply in November and the unemployment rate is still forecasted to remain close to 6 per cent i.e. almost twice pre-COVID levels even at the end of 2021.\n<ul>\n<li>Household demand for MGNREGA remains very elevated, suggesting significant labour market slack.<\/li>\n<\/ul>\n<\/li>\n<li><strong>The employment rate:<\/strong>\u00a0Some labour market surveys still reveal about 14 million fewer employed compared to February.\n<ul>\n<li>Nominal wage growth across a universe of 4,000 listed firms has slowed from about 10 per cent to 3 per cent over the last six quarters.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>Why does this matter?<\/strong><\/p>\n<ul>\n<li><strong>Weak demand<\/strong>: It disincentivises re-hiring, reinforcing the risks of settling into a sub-optimal equilibrium.<\/li>\n<li><strong>Worry for future demand<\/strong>: It may be normal for any one firm to boost profits by cutting employee reward. But if every firm pursued that strategy, It simply dismantles future combined demand and profitability for all firms.<\/li>\n<li><strong>Acceleration of technological adoption:\u00a0<\/strong>Differential productivity impacts on capital, skilled and unskilled labour, will likely have more deep impacts on the future capital-labour mix, possibly stressing existing inequities.<\/li>\n<li><strong>Job-market pressures:<\/strong>\u00a0If job-market pressures convince households into observing this shock as a quasi-permanent hit on incomes, households will be incentivised to save, not spend in the future.<\/li>\n<li><strong>Global recovery:<\/strong>\u00a0If labour market pressures dent private consumption, and an incomplete global recovery in 2021 dents export prospects.\n<ul>\n<li>There will be no authoritative for entrepreneurs to invest, especially with manufacturing utilisation levels below 70 per cent heading into COVID-19 outbreak.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Fiscal policy:<\/strong>\u00a0US policymakers are negotiating yet another fiscal package, and only a small fraction of the large discretionary stimulus that the Euro Area and Japan injected will be reversed next year.\n<ul>\n<li>India\u2019s fiscal response has been controlled so far. It\u2019s therefore important for the Centre to step up spending in the remaining months.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>What is the way forward?<\/strong><\/p>\n<ul>\n<li><strong>Public investment and a large infrastructure push:<\/strong>\u00a0Must be the theme of the next budget. This will be crucial to boost demand, create jobs, crowd-in private investment and improve the economy\u2019s external competitiveness.<\/li>\n<li><strong>Monetary to fiscal:<\/strong>\u00a0In 2021, the stick must pass from monetary to fiscal, especially since the latter is a more surgical instrument to target SMEs and the labour market.<br \/>\n<hr \/>\n<\/li>\n<\/ul>\n<blockquote class=\"wp-embedded-content\" data-secret=\"ccjpQwwrR0\"><p><a href=\"https:\/\/forumias.com\/blog\/economy-news\/national-income-updates\/\">National Income Updates<\/a><\/p><\/blockquote>\n<p><iframe loading=\"lazy\" class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; clip: rect(1px, 1px, 1px, 1px);\" title=\"&#8220;National Income Updates&#8221; &#8212; Free UPSC IAS Preparation For Aspirants\" src=\"https:\/\/forumias.com\/blog\/economy-news\/national-income-updates\/embed\/#?secret=z61Y3TeP2s#?secret=ccjpQwwrR0\" data-secret=\"ccjpQwwrR0\" width=\"600\" height=\"338\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Context:\u00a0A recovery led by profits, at the expense of wages, has implications for demand, inequality and policy. GDP is typically reported in two ways:\u00a0The sectoral, production side (agriculture, manufacturing, services) and the functional, expenditure side (consumption, investment, net exports). Third way:\u00a0On the income side, GDP is calculated as the sum of profits, wages and indirect&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/economic-recovery\/\">Continue reading <span class=\"screen-reader-text\">Economic recovery<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":72269,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230],"tags":[1284,1530],"class_list":["post-71903","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-9-pm-daily-articles","tag-eco_2","tag-gdp_national_income_updates","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2020\/12\/Economic-recovery.jpg?fit=1280%2C720&ssl=1","views":{"total":0,"cached_at":"","cached_date":1704911287},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/71903","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=71903"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/71903\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/72269"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=71903"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=71903"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=71903"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}