Macro-Economic

indicators

Presentation by Rahul, Dom, Lillian & Cherlyn

Question
There are several macro-economic indicators for
MNEs to use to evaluate the economic
environment of a foreign country (market). Out of
these indicators, the following four (GDP,
inflation, unemployment, and government debt)
are most useful in assessing a countrys economic
attractiveness. Discuss the statement.
 So. lets get started!
- Vital for a MNE to evaluate the economic environment of a potential foreign
market
-.but in order to do so, need to assess the economy or macro-economy

-Differences in economic conditions influence benefits, costs and risks associated

with doing business as well as management strategies and practices.

- Many factors and macroeconomic indicators that provide snapshot of the

economic environment.

- What does Gross Domestic product (GDP), Inflation, Unemployment and

Government Debt actually indicate? Are there Limitations?
Breakdown
GDP
Dom

Inflation
Lillian

Unemployment
Cherlyn

Government Debt
Rahul
What is Gross Domestic Product?
-Monetary measure of the market value of all the final
How is GDP calculated?:
goods and services in an economy:
Production approach

-Nominal GDP = GDP evaluated at current market prices Gross Value Added = gross
value of output value of
GDP per capita intermediate consumption.
Income Approach
Does not include: GDP = compensation of
- The price of intermediate goods (assumed to be part employees + gross operating
surplus +gross mixed income +
of the final price) taxes less subsidies on
- Illegal goods production and imports
Consumption approach

Has to be produced in that period: GDP = Consumption +

Investment + Government
Used car sales do not count Spending + Net Exports
Why is it useful? Gross Domestic
Product (GDP) is one
Cross border comparisons: of the most widely
used measures of
-Current currency exchange rate an economy's
-Purchasing power parity output or
production in the
world!

Standards of Living:
-GDP per-capita
-Measured frequently, widely and consistently.

Allows trends in an economy to be identified quickly.

Limitations
The usefulness of GDP is limited because it does not include:
-Externalities
-Non-market transactions
-Non-monetary transactions
Think about it!
-Non-monetary economics
How much can 1
-Quality and sustainability of growth statistic or indicator
possibly tell about
-Wealth distribution an entire economy?
-GDP per Capita

Economic Growth
-Measured as a
percentage change in
the GDP of a nation

Business Cycle
Upward or downward
movements in the change
of GDP (Economic Growth)

Economic Expansions and

contractions
China post 1990s

.
 -Increases in economic growth
Why is economic caused by a more efficient use of
resources is called intensive growth.
growth -Such as the US where 80% of GDP growth is

important? due to technological advances

-Increases in economic growth cause

by an increase in inputs is called
extensive growth

-Such as the Australian mining boom

Inflation
What is Inflation?
-increase in the general price level over
time. CPI and GDP deflator

Why is important?
-Inflation that goes beyond a specific
target generally has adverse effects on
the economy.
Costs of high inflation
-High rates of inflation can hinder the long term economic
development of an economy
In the Australian context
- ASEAN countries and Latin America
for example. - Between 1980 and
-Major constraint on economic growth 1992 the inflation rate

-Distorts economic decision making averaged 7.2% and

-Prices Value of Money affects purchasing power economic growth
of incomes and savings
averaged 2.8% ,
whilst from 1993-2003,
inflation averaged
2.3% and economic
growth averaged
3.8%
 -Reduced International
competitiveness
- Inflation higher compared to other markets, then
Thus inflation is one domestic goods and exports will become more
of the most useful expensive and less competitive on world markets
macro-economic - Issues for wage rises, interest rates, production and
indicator! supply costs.
Because it affects so
many aspects of the -Income redistribution
economic environment! - High and persistent rates of inflation unintentionally
redistribute income and wealth
- People with fixed incomes or with little bargaining
power in the labour market lose real income
- People with more bargaining, can maintain their real
incomes in the face of inflation.
Unemployment Unemployment rate

What is unemployment?
-A person will consider to be
unemployed when they reach the
working age and are actively searching
for a job but cannot find one

Why is important?
- . Levels of unemployment is an
important indicator for the economic
performance of a market as
unemployment has certain economic
costs
Costs of Unemployment
In the Australian
- Lower levels of economic growth tend to be accompanied by context
higher unemployment rates - During the GFC in
Australia, where economic
- Cyclical or Structural employment? growth declined from
3.7% in 2007-08 to 1.4%
in 2008-09 causing
- Increased government spending on social welfare and retraining unemployment to rise
programs due to unemployment from 4.2% of the labour
force to 5.6%.

- 127,000 jobs in lost

manufacturing since
2008 alone.
- unemployment and
sickness benefits rose by
1.1 billion from 2011-12 to
over $8.5 billion in 2013-14
due to rising
unemployment,
-This explains why
levels of unemployment
is considered to be
reflective of the overall Links
Are the links

health of the economy between each

indicator becoming
more apparent?
Government Debt to GDP ratio

Debt -Used by EU

What is Government debt

- Government debt is the total
borrowings of a government, minus
repayments.

Why is important?
- . Depends on Market to market

- Obviously lower government debt is

one of the indicators of
macroeconomic stability.
 So why would Government debt be an important
macroeconomic indicator?

- Can become unsustainable and result in

macroeconomic instability, and could affect
investor and consumer confidence.

- How the debt has been accumulated? (% is foreign

debt? Cyclical, structural)
Did you notice?
Government debt is - Where is the debt being spent?
often a focal point
during the election
campaign.
Effects of high levels of government
debt
-According to an IMF report in 2014, high levels of
government debt did not hurt economic growth in the
medium to long term Facts
-Due to EU debt crisis,
unemployment rates in
- Is the level of Government debt sustainable? DEPENDS Greece reached 27%!
ON THE COUNTRY! .- Government response
to debt in Zimbawe and
Germany in 1920s saw
hyperinflation.
- Thus the importance of
Government debt as an
indicator relies heavily
on a market to market The IMF in 2014
found that countries

basis.
with relatively low
debt to GDP ratios
exhibited positive
signs of
macroeconomic
stability.
So are these 4 indicators the
most useful?
There are many macro
indicators of the health and
well being of the the
economy. To suggest that 4
indicators are the most
useful doesnt do justice as
to how complex an
economy is, as there are
many facets which 4
indicators cannot possibly
cover (EXCHANGE RATE!!)
The unemployment rate,
inflation rate and the rate of
economic growth (GDP) will
continue to be the key
indicators of how attractive
an economic environment
is. Government debt is also
important but will depend
on how sustainable the
debt is (credit rating etc,
CAD, BOP).
Macroeconomic indicators
have to be used in
conjunction with indicators
of economic development,
type of economic system
to make judgements on the
attractiveness of an
economic market.
Thank you!
Hope you guys enjoyed the
presentation! (Or at the very
least did not fall asleep).