Global Business Conditions
To:
From: Economics department
Date
Re: The analysis of the global business conditions
The current state of the economy
The general global economy is expected to meet challenges due to multiple fronts in this year. US Federal Reserve has started tightening its monetary status, Europe is putting great efforts in managing debt and migrant crises, China is meeting unstable financial conditions, and all economies around the world are emerging as weak (Kozmetsky & Yue, 1997). The Japanese and the European economies are floating due to weak currencies and low prices of oil while the Chinese economy is slowing because of the fall in the commodity prices and the rate hiking in the US monetary (Kozmetsky & Yue, 1997). America productivity gains have gone low and this has constrained the job growth and counties level of GDP. The most dangerous risk of all that is affecting global economy is a growing population leading to policy uncertainty constraining the decisions of the policy makers.
Macroeconomic policy makers have developed a concern on how to stabilize the economy. This is due to a recent great depression pointing to large costs in humanitarian business. Due to this depression level, billions of dollars are being lost in business which has affected the global economy (Hart & Tindall, 2009). Therefore the concern is put stabilization policies in place that leads to humanitarian benefits. This has called for a need by policy makers to set the following goals. There is a need to stabilize the inflation level and the target is 2%. The policy makers are aiming to ensure sustainable growth through ensuring low inflation and reducing the negative environmental effects of growth (Hart & Tindall, 2009). There is also a need to improve in the global productivity through improving in the strategies of competition and global trade performance. Policy makers also strive to achieve better employment levels by ensuring that whoever is able and willing to work gets meaningful work and that will raise people’s standards of living and eradicate poverty. Lastly, there is also an aim guarding monetary status by controlling over borrowing by states and this will help reduce nation’s total debt. Therefore to stabilize the economy, policy makers are expected to start by strengthening monetary policies in big markets such as china.
Changes expected in US interest rates
U.S economy is expected to meet high interest rates according to the update by the Federal Reserve. Most of its economic growth is expected to be driven by businesses investing in fixed asset and increase in consumer spending. It is forecasted that consumer expenditure will account for the highest percentage of America’s GDP (Hart & Tindall, 2009). China’s currency has been confirmed to fall in the past five months in relation to a dollar which has sparked fear about Asia’s economy. China’s currency was weakened against US dollar in January 7, from 0.51 to 6.5646 percent. The state of china is roiling global markets due to uncertain conditions and businesses have fear to trade on the country’s stock markets.
Factors, issues and assumptions determining the assumptions
The real GDP is one of the indicators of economic stability since it is a determinant of various factors in the economy. With the general fall in the commodity price in most economically stronger countries like china, it has retarded the growth of the forecasted profits and the return expected out of capital (Litan, 2014). This has resulted in to a fall in the general capital turn out with many associated negative impacts in the economy such unemployment, deflation and low standards of living resulting in to unstable economy. This kind of economy is associated with uncertain monetary condition which is hard to manage and direct in to productive activities and that is the case with china (Litan, 2014). The current employment statistics is also another factor that the state of the economy may rely on to evaluate whether it is stable or in an unstable condition. Employment rates indicate the welfare of the economy and labor force. The employment levels in America and China have been found to be going down in the past few years which is an indication of low standards of living among the people and low production levels. The level of debt is also a great determinant of the economy’s state (Litan, 2014). A country with a high rate of debt is always in an unstable economic state since its income is supposed to pay off the debts. China is at a high threat of debt and this has put it in a dangerous state and has caused worry to many investors since the rate of debt has soared from 100% of GDP to 250%.
Implications on the corporate profits
High rate of debt implies that the profits being earned are transferred to clear off the debt instead of carrying further investment. This can also threaten new investors to invest in such kind of economy (Litan, 2014). Low real GDP results in to unemployment and low standards of living in the economy. Devaluation of the currency also discourages many investors to go on with business activities and as such economic growth is being retarded.
References
Litan, R. E. (2014). Trillion dollar economists: How economists and their ideas have transformed business.
Kozmetsky, G., & Yue, P. (1997). Global Economic Competition: Today's Warfare in Global Electronics Industries and Companies. Boston, MA: Springer US.
Hart, P. ., & Tindall, K. (2009). Framing the global economic downturn: Crisis rhetoric and the politics of recessions. Acton, A.C.T: ANU E Press.
