If you are one of those who read that Malaysia’s GDP increased by 5.3% in 2015, but not sure what that really meant. Do not worry; you are probably part of the majority of readers. In the midst of our hectic lifestyle in Malaysia, can anyone really afford the time to go read and analyze what all these economic reports actually mean for the general public in Malaysia?
Take for example the GDP figures mentioned above, two questions spring up upon reading the headline. (1) What does GDP actually meant? (2) What does the increment in 5.3% imply for all of us in Malaysia.
Gross Domestic Product (GDP)
GDP stands for Gross Domestic Product. It is defined by Investopedia as “The monetary value of all the finished goods and services produced within a country’s borders in a specific time period”. Here are some examples.
Example 1: Buying furniture from the latest mega sale is call consumer spending. It is part of GDP.
Example 2: The taxi fare you pay on the way to work is a service you consume. It is part of GDP.
Example 3: The electronic parts produced by our factories and shipped off to other countries is an export for Malaysia. It is part of GDP.
Example 4: The latest shopping mall you see being built in Malaysia is an investment by a firm into the real estate industry. It is part of GDP.
What does a GDP growth or contraction implies?
An easy way to understand what GDP growth meant is to simply use the analogy of a company running a business. The revenue that the company generates each year is akin to the size of a country’s GDP. If a company generates higher revenue compared to the previous year that equates into a revenue growth.
Similarly if a country generates a higher GDP compared to the year before, that equates into a GDP growth. The same applies for the reverse scenario, if a country generates a lower GDP compared to the previous year, the GDP for the country would have contracted.
So just how exactly does the GDP affects you and I?
Take for example, if a company that you worked for records higher revenue for the year, how would that affect you as an employee? Would you be getting a pay raise or a larger end of year bonus? In the same way, should the company make lower revenue for the year compared to the one before, would that mean you would be getting a pay cut or worse, lose your job?
For both the questions posed, the answer is ‘not necessary’. Likewise the degree to how much effect the economy has on individual on a micro level is uncertain. The performance of the economy can only be a gauge on how well the country is doing overall.
We will go more in depth into this topic in the future. For now, you can leave us a comment on what you think of the topic and whether you agree with our explanation.
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