If you’re an economics student, you’ll need to know plenty of theory, but keeping up with current affairs and being able to apply your knowledge to understand real-world situations is just as important. Read on to find out who’s winning big and who’s losing out in 2017, followed by a look at two of the year’s big economic stories and a host of questions to get you thinking deeper about how economies rise and fall.
Ten years after the global financial crisis, many major economies, especially in Europe, are still troubled, despite prospects in the Eurozone starting to improve. Greece remains in crisis, while Britain is starting to feel the bite of Brexit. Although other countries like Germany and the USA are faring better, it is lower and middle-income countries that are leading the growth charge in 2017. Here are the five countries which are predicted to grow the most by the end of this year, followed by the five which are predicted to decline the most.
India and Venezuela are two very different economic stories of 2017, which provide excellent case studies for students to understand the role of both global economic forces and government policy in economic development and disaster.
India is set to be the world’s fastest growing major economy in 2017, overtaking China in 2016. Nonetheless, the country has a long way to go to catch up to its giant northern neighbour.
For many decades following independence in 1947, India’s economic growth was sluggish. The country pursued a mixed economic strategy, pursuing a middle way between the capitalism of the West and the socialist, state-run economies of the USSR, China and other communist-ruled countries. But India, exploited for centuries by the British, struggled with huge poverty, a lack of resources and fought several wars with its neighbours. Entrepreneurship and foreign investment were stifled by an inefficient, byzantine bureaucracy and corruption. By the 1990s, it was clear India’s development model had failed, and the collapse of the USSR and a surge of oil prices caused considerable economic problems, spurring major economic liberalisation.
Since the turn of the century, India has experienced high growth rates, averaging 9% from 2003 to 2007. If current trends continue, India will become the world’s third largest economy in nominal GDP terms by 2030, larger than Japan and Germany. Given India’s vast population, however, it will remain well behind these countries on a per-capita basis. India is expected to overtake China as the world’s most populous nation by 2022, reaching 1.5 billion by 2030 and 1.7 billion by 2050.
Despite its strong growth in 2016, India’s economy stumbled in the first quarter of 2017, which many economists blamed on the government’s ‘demonetisation’ move last year which led to months of acute cash shortages as the government replaced 500 and 1,000 rupee banknotes, in a move to encourage untaxed wealth to move into the system: in India, just 1% of the population pay income tax. Nevertheless, the country is expected to rebound quickly, with low inflation and large amounts of foreign investment. With a young English-speaking workforce and a burgeoning middle class, India has the potential to become one of the world’s most important economic engines.
Venezuela in 2017 is a country in deep crisis. The South American nation possesses the world’s largest proven reserves of oil (estimated at 297 billion barrels in 2014). However, an over-dependence on oil revenues, economic mismanagement and lavish public spending has met with a collapse in oil prices to send Venezuela’s economy spiralling into ruin. According to the IMF, the economy shrunk by 8 percent in 2016, with unemployment at 17 percent and rising and inflation hitting an incredible 481 percent.
The massive drop in oil prices which started in 2014 had a ruinous effect on Venezuela’s economy. Petroleum accounts for 89% of Venezuela’s exports. From $99.21 a barrel in June 2014, oil prices hit a nadir of $23.95 in February 2016. This has bled away Venezuela’s foreign currency reserves and caused a massive accumulation of debt. This over-reliance on commodities, particularly on a single one like in Venezuela’s case, leaves nations dangerously vulnerable to market fluctuations. In fact, this phenomenon of resource-rich countries experiencing economic and political instability and low development is known as the ‘resource curse’.
The country hasn’t always suffered from large scale economic problems. From the 1950s to the 80s, Venezuela experienced steady growth and had the highest standards of living in the continent. The economy ran into trouble in the 80s and 90s, and by 1999 almost half of the country’s population was below the poverty line. The socialist government of Hugo Chavez, which assumed power in 1999 in response to this hardship, subsequently created many of the conditions for today’s crisis.
Heavy government intervention in the economy led to a collapse in many domestic industries, including food production, leading the state to import more goods from overseas with petro-dollars, reliant upon the high oil prices of the early 21st century. Chavez’s socialist government also invested heavily in subsidies for poorer Venezuelans, providing a better life for millions. However, with the collapse in oil prices, along with a decline in overall production, the government has now found itself in a deep budget deficit.
Unable to pay for essential imports like food and basic medicines, Venezuela is now experiencing severe shortages. Skyrocketing inflation has meant families are scarcely able to afford to eat. With a poverty rate approaching 80%, the country is now witness to regular street demonstrations and has one of the highest crime and murder rates in the world, with the capital Caracas ranked as the world’s most violent city in 2016. According to the IMF, the economy contracted in 2016 by as much as 10%, and there is no end in sight to the crisis.
If you want to understand more about India’s rising economy or Venezuela’s crisis, and the economic and political processes which underpin them, here are some questions to consider:
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