In economics, the economic growth of a country is measured by the increase in its GDP or Gross Domestic Products. There is also a difference between nominal and real economic growth, where the nominal growth includes the inflation, the real economic growth is nominal growth adjusted for inflation rate. When we talk about real economic growth, we usually talk about the long term economic stabilization and growth. Industries face a cycle of growth and contraction in its economy due to several factors. These include the market health, preference of the consumers, and even world events and news, which might seem unrelated. While some industries seem to get ahead of others, the global factors that affect the economy of an industry must be considered seriously when making plans for business growth.
Sustainable economic growth is defined as the expansion of the productive potentials of an industry in the long run. It should result in higher standards of living, giving rise to employment and an increase in the real GDP of a country. Below are some factors that influence the economic growth and development of an industry.
Inflation affects both consumers and producers in the market, and poses a threat to the market stability. Throughout history, inflation has played a major role in the economy of nations. For example, after World War I, the German government printed a vast amount of money, which gave rise to major inflation in the economy of Germany. When people had money, but scarcity of products, the price of the products went sky high, as the value of money had gone down. Having plenty of money made the price go so high that people had to pay a large amount of money to by a simple loaf of bread. Currently, many nations of the world are facing similar financial crisis and economic downward trend, giving rise to a credit crunch.
When inflation affects the economy of a nation, you have to pay more money to maintain the same standards of living, and to purchase the same amount of goods and services, due to a rise in prices.
Interest rates can have a major impact on the growth of economy, especially for industries such as real estate, automobiles, and cruise companies. A larger interest rate would discourage customers from burrowing money and purchasing these products or services. It also discourages companies form making expansions, investing in new areas, making new capital investments, and starting new businesses.
Value of the currency
The value of the U.S dollar compared to other foreign currencies is important for all businesses, even if they do not engage in import or export with other countries. Just like people and businesses, the Government of the United States also has loans and must pay interest on them.The United States often prints more money than it actually has, to give the economy a boost. This can lower the value of the dollar. A customer can choose to buy goods and services that originated in the United States, or any other country. If the U.S dollar has more value, or purchasing power, the companies that are reliant and heavily depend on other countries for its inputs, such as raw materials or processing goods, can be more competitive in the market.
Environmental impacts have a profound effect on the growth of an industry in today’s economy. It is not only the environmental effects, but also the perception of the general public that impacts businesses and the economy. For example, the demand for fur coats declined drastically in the past decade, as consumers became more aware of animal welfare and ecological balance. If the public perceives that the products or services of an industry as being environmentally unsafe or harmful, most companies within the sector will experience a decline in sales.
Many industries are monitored and regulated by government agencies such as the Environmental Protection Agency ( EPA), U.S. Department of Agriculture (USDA), and the Food and Drug Administration (FDA), to maintain standards of all operators in each industry. All companies must follow the government safety rules for employees, consumers, the environment, and natural resources, as per specifications and requirements of these agencies.
Economic development of an industry is also influenced by the confidence of general people on the industry, the economic state of a nation, and involvement of government in the industry. The real development cannot be achieved by depleting environment, or at the cost of our health, which can in the long run, backfire on us, and lead to economic and social disasters, creating negative impacts for general population around the globe.
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Source: Institute of Ecolonomics