Economical Analysis of UK - Example

Economical Analysis of UK Introduction There are several kinds of analysis; one of them is economical analysis, which has its own importance in the long run productivity. There are numerous factors, specifically known as economical factors and indicators which have been used by the analysts to assess and analyse the economies of different countries as a whole (Cinnamon & Larsen 2006, pp.48). The main purpose of this assignment is to compare the economies of United Arab Emirates (UAE) and United Kingdom (UK). The assignment contains technical jargons that require additional analysis as well as study to correlate among the economies of both the countries. It is important to jot down the details about both economies followed by the Macro Indicators which would have be used for the same purpose and then to pitch about the core analysis of this assignment. UK: Country Analysis UK, known officially as United Kingdom and is basically a country comprising the mainland of the continent. From at least 40,000 years, the people lived in the country known by the name of indigenous UK. The people lived in UK, distributed in around 250 languages group as a whole. One of the biggest part of UK, is still under the rule of Great Britain and the country receive packages from Britain for the same (Charles & Jones, 2007, pp54) UK federation has been comprises six states in total and several territories, while the population of the country is around 22.7 million which is quite low, as compared to the size of the country itself. UK is known as one of the developed countries of the world. The UK stands 4th largest economy of the world in ranking and has the 5th largest per capita income in the world (Charles & Jones, 2007, pp 111). The country is efficient economically as well as strategically, thus country spends large amount of funds on its military. Total Gross Domestic product (GDP) of the country was $915.098 billion in the year 2011 while per capita income was $66,371 which is the 5th largest of any country in the entire world. The financial system of the country is extremely strong, thus appreciates its currency itself. It also trades in the currency and financial markets of the world against different currency pairs, simultaneously. UAE: Country Analysis The United Arab Emirates, also called Emirates or UAE is an Arab based country, located in the Southeast of Arabian Peninsulas on the Persian Gulf of Oman and Saudi Arabia. UAE is basically a federation of seven emirates with a single national president. The constitutes of UAE are, Abu Dhabi, Dubai, Ajman, Fujirah, Ras Al-Khaimah, Sharjah and Umm al-Quwain. The capital of the country is Abu Dhabi (Charles & Jones, 2007, pp 104). The country is known as one of the peaceful countries of the world with political and economical stability. There are number of reserves that country retains; among them is an oil reserve. The oil reserve of UAE is the 7th largest of the world, according to the statistics revealed by Forbes. UAE is known as the most developed and rich County of Western Asia. UAE is the 13th largest economy at the market of exchange rates, with 7th largest per capita income with a high development Index. According to the International Monetary Fund (IMF), UAE is a high income developed economy of the world. The nominal Gross Domestic Product (GDP) of the country is $ 360.136 billion in the fiscal year of 2011 with per capita income of US$ 67,008 in the same year (Charles, W, Hill & Jones, 2008, pp 95). Tools that are used for the analysis of Economies There are several indicators and tools which may be used to compare the economies of different countries. Among those indicators, Gross Domestic Product (GDP), Purchasing Power Parity (PPP), Consumer Price Index (CPI), Per Capita Income (PCI), Employment rate and Balance of Payment (BOP) are some of them. And along with this, some different tools would be used later in this project, for the particular analysis (Charles & Jones, 2007). Following are analytical views of how economical tools can be utilized to measure the economy of a country: 1. Gross Domestic Product (GDP) Analysis Gross Domestic Product (GDP) is basically the total market value of all the officially recognised final products and services, which a country has produced in a financial year (Charles & Jones, 2007). Though, it indicates the national accounts and used by many country analysts to compare the effectiveness and economic consequences of a strategic alliance. Below is 10 years of data, which would be taken into consideration for the analysis. Country/Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 UK 416.89 425.52 442.14 456.6 475.58 489.65 504.74 522.73 542.76 550.62 563.05 573.45 United Arab Emirates 104.34 105.8 108.37 117.91 129.19 135.46 148.88 153.66 158.73 156.17 158.41 166.17 Note: All the figures are in Billion US Dollars From the above analysis, it is clear that the GDP growth of UK is far better than UAE. The GDP of UK increased year by year. On the other hand, GDP growth of UAE showed a negative sign in the year 2009 (UAE Budget, 2000-2013, pp 19). Seemingly, UK economy performed exceptionally well during the period 2008-2010. Particularly, it was thus the same period in which, entire world was under severe recession phase of trade cycle, whereas GDP of UAE decreased by 1.61% in the year 2009 as compared to previous year (UAE Budget, 2000-2013, pp15). In terms of monetary value, average GDP of UK is US$ 496.97 billion while the average growth rate of GDP is 2.94%. On the other hand, the average GDP of UAE is US$ 136.92 billion in terms of monetary value and along with this; the average GDP growth rate is 4.38% (UK Budget, 2000-2012, pp 4). From the analysis, it represents a snapshot that the GDP of UK is way higher than UAE, but the growth rate of UAE is far better than UK. UK’s GDP is four times higher than that of the GDP of UAE and this merely depends upon the size. GDP Per Capita GDP per capita is one of the most important and widely used economic tools and indicator that is used to analyse the effectiveness of an economy and concerned about the increasing economic prosperity (David, 2007, pp 65). From the above graphical representation, it is analyzed that, Per capita income of UAE was in a fair and satisfactory range against the per capita income of UK, 2000-2008. As it was the only year in which the country recorded a negative growth rate in its corporate history (UK Budget, 2000-2012, pp 7). After the period of 2008 to present, per capita income of UK is far better than that of the per capita income of UAE, showing that the people of UK are enjoying high net income as compared to the people of UAE, which certainly enhances their life styles (UK Budget, 2000-2012, pp 6). Although, the population of UK is way higher than population of the UAE, but still the coountry manages to improve the life style of its citizens by taking and considering different provisions into account. The per capita income of UK is $66,371 by the year 2011, while the current per capita income of UAE is $48,151, much lower than that of the PCI of UK (UK Budget, 2000-2012, pp 10). The Consumer Price Index and Inflation Rates Consumer Price Index (CPI) is yet another significant macro economic indicator to analyse the productivity as well as economic well being of a country (UK Budget, 2000-2012, pp 8). Inflation rate analyses that whether a currency is depreciating or appreciating by its intrinsic value; thus assuring the strength or weakness of the country’s viability. It is well understood that hyper-inflation or deflation would have an impact on Consumer Price Index (CPI) in either way. It also affects the rate of consumption, savings, and investments drastically (Derrick, 1992, pp 25). Year UAE CPI UK CPI 2008 114.31 92.7 2009 114.08 93.8 2010 115.2 96.5 2011 115.95 99.8 2012 116.91 101.8 As compared to this particular economic indicator, it is found that the level of inflation in UAE is higher than UK (UK Budget, 2000-2012, pp 21). This is not a good factor from the standpoint of an economy like UAE, which is low in GDP as compared to UK and unfortunately not able to set out a perfect mechanism to control the level of inflation from the country which is not good either from viewpoint of individuals and country as well (UK Budget, 2000-2012, pp 20). Below is the comparison of inflation that depends upon the basket of products and consumer’s goods (UK Budget, 2000-2012, pp 21). UK Basket UAE Basket 1. Food and non–alcoholic beverages 1. Food and soft drinks 2. Alcohol and tobacco 2. Beverages and tobacco 3. Clothing and footwear 3. Textiles, clothing and footwear 4. Housing 4. Housing 5. Furnishings, household equipment and services 5. Furniture and household goods 6. Health 6. Medical care 7. Transport 7. Transportation 8. Communication 8. Communications 9. Recreation and culture 9. Recreation and culture 10. Education 10. Education 11. Insurance and financial services. 11. Restaurants and hotels 12. Miscellaneous goods and services Though the CPI of UAE is higher than UK, but by the year, it’s escalating inflation hence manifesting a different story. From the above mentioned graph, it can be clearly seen that the inflation rate of UK is way higher than the inflation of UAE (UK Budget, 2000-2012, pp 19). The average increase in inflation rate of UK in last five years was is 2.37%, while it is 0.56% for UAE. This means that the UK economy is experiencing high inflation rate as compared to the UAE. Discount or Interest Rate There is a marginal difference between discount and interest rate; as discount rate is the rate on which the central bank lends money to the commercial bank. Interest rate is the one, on which the commercial bank lends money to the individuals (UK Budget, 2000-2012, pp 23). It is extremely important to set a low interest rate in order to increase the productivity of the country as a whole. Below is the graph of both UK and UAE (UK Budget, 2000-2012, pp 22). Source: www.tradeeconomics.com/ The interest rate of UAE was extremely high, showing a net figure of around 5% in total in the fiscal year 2008, which decreased considerably, to a level of 1% in the year 2010 and then remained constant (UK Budget, 2000-2012, pp 20). Central bank of UAE stabilised the rate to 1% in order to increase the level of borrowing specifically for the private sector, merely because of the high probability of earnings (Dubai Budget, 2000-2013, pp 15). On the other hand, the interest rate of UK fluctuated around 6% in the fiscal year (FY) 2007, which was then increased in the year 2008 merely due to the economic crisis. From 2010 to 2012, considerable change has been envisaged an interest rate of around 3.5% in the year 2010, increased to a level of nearly 5% in 2011 but then in a meanwhile it was settled to the level of 3.3% (UK Budget, 2000-2012, pp 13). The analysis of interest rate suggests that UK is not in a good position as compared to UAE. Apparently, Foreign Direct Investment (FDIs) would be attracted and keen to invest where they are provided with fair amount of return on investment. Whereas, considering the UK economic market, it gives a glimpse idea that prime borrowers of money would pay less interest on paying back (UK Budget, 2000-2012, pp 30). Import and Export Provision Import and Export is a major macro economic indicator, which exhibits the position of any country. So, if Exports > Imports; means it’s favourable for country and vice versa (UK Budget, 2000-2012, pp 6). It also incorporates several elements like, currency reserves, friendly relation and strategic alliance between two or more countries. Source: http://UK.gov.au/topics/government-and-parliament/budget Source: http://www.arabianbusiness.com/uae-approves-2012-federal-budget-no-deficit-478013.html It is observed that UK surpassed its exports from the year 2009, but totally a different scenario has been envisaged with the economy of the UAE (UK Budget, 2000-2012, pp 16). The exports of UAE breached the level of imports from the fiscal year 2009. From the above analysis, it can be said that the net exports provision of UAE is far better UK, which always implies a positive impact over the GDP of the country as a whole (UK Budget, 2000-2012, 16) Unemployment Rate Analysis Inevitably, unemployment rate is one of the most widely used economic based tools to analyse the economical strength of a country (UK Budget, 2000-2012, pp 12). High unemployment rate means that the country has countless youngsters and citizens willing to do a job but due to lack of opportunity they are sitting ideally. Contrary, 0% of unemployment is also not ideal perhaps shows that country has high child labour rate. Therefore, keeping it moderate; meaning thereby, not that high or low is what countries look forward to (UK Budget, 2000-2012, pp 17). Below is the graphical representation of unemployment rate of UK and UAE. Source: www.tradeeconomics.com/ Source: www.tradeeconomics.com/ Above mentioned are the graphs of unemployment of both of the economies (UAE Budget, 2000-2013, pp 15). The unemployment rate of UAE was 3.1% in the fiscal year 2006 which increased with regular intervals by some percentages (UAE Budget, 2000-2013, pp 14). Currently, the unemployment rate of UAE is 4.6%, which is quite high as compared to other developed countries of the world (UK Budget, 2000-2012, pp 11). On the other hand, lots of fluctuation has been found among the unemployment rate of the country as a whole (UK Budget, 2000-2012, pp 12). The unemployment rate of UK was around 4.5% in the year 2008, when the entire world was hit by financial crisis drastically. However, it started too crippled up and then the unemployment rate kept in the congestion band from 6% to 5.5% (UK Budget, 2000-2012, pp 11). The unemployment rate of UK is 5.5%, higher than the unemployment rate of UAE, which is again a negative sign from the viewpoint of a country. Regression Analysis Regression analysis would be used on GDP growth of the country. The table of GDP growth computed through regression analysis is mentioned in the appendix. That means, GDP of the country for 50 years is 1.48%. According to the regression analysis, the GDP of the country would decrease by 30% in the fiscal year 2013and would fall tremendously to 0.14%. Conclusion There are basically two different kinds of economics, which predominantly are microeconomics and macroeconomics (Charles & Jones, 2007, pp 51). Clearly, the economics that deal with the individual is known as microeconomics, while the economics that deal with countries as a whole is known as macroeconomics (Charles & Jones, 2008, pp 67). There are numerous concepts that come under the ambit of economics and its management. Most oblivious, read and understood is the economical analysis concept. The main theme of this paper is to analyse two different economies of the world through different economical models and indicators. From the entire analysis, it is found that, though the size of the economy of UK is higher than GDP of UAE, but all other economical indicators are in the favour of the country. Economical indicators like, inflation rate, CPI, Interest rate and unemployment are in the favour of UAE and by considering the same, it could be said that the economy of UAE is far better than UK. References Cinnamon, R & Larsen, B.H (2006), Economics and Budgeting, McGraw Hill Publications, pp. 65-75 Charles, W & Jones, R (2007), Economics and Budgeting An Integrated Approach, Oxford University Publications pp. 65-85 Charles, W, Hill & Jones (2008), Economics and Budgeting: An Integrated Approach, John Wiley & Sons Professional Publications, pp. 75-95 David, F (2007), Economics and Budgeting, McGraw Hill Publications, pp. 105-112 Derrick, M (1992), Economics and Budgeting Risk Management, John Wiley and Sons Professional Publications, pp.11-68 UAE Budget 2009-2013, retrieved from < http://www.bti-project.de/fileadmin/Inhalte/reports/2012/pdf/BTI%202012%20United%20Arab%20Emirates.pdf> Accessed on 2013-April-4th UAE Budget 2012, retrieved from < http://www.arabianbusiness.com/uae-approves-2012-federal-budget-no-deficit-478013.html > Accessed on 2013-April-4th UK Budget 2000-2012, retrieved from < http://UK.gov.au/topics/government-and-parliament/budget> Accessed on 2013-April-3rd Appendix Year GDP Growth 1962 0.2   1963 -0.3 -250.0 1964 2 -766.7 1965 2.5 25.0 1966 4 60.0 1967 3.5 -12.5 1968 1.5 -57.1 1969 2.8 86.7 1970 2.1 -25.0 1971 -2.6 -223.8 1972 2 -176.9 1973 2.1 5.0 1974 2 -4.8 1975 2.2 10.0 1976 2.3 4.5 1977 2.4 4.3 1978 1.8 -25.0 1979 1.9 5.6 1980 4.2 121.1 1981 0.8 -81.0 1982 0.9 12.5 1983 0.95 5.6 1984 1.2 26.3 1985 1.6 33.3 1986 1.7 6.2 1987 1.8 5.9 1988 1.9 5.6 1989 2.1 10.5 1990 1.4 -33.3 1991 0.4 -71.4 1992 0.2 -50.0 1993 1.2 500.0 1994 1.3 8.3 1995 1.6 23.1 1996 1.4 -12.5 1997 1.5 7.1 1998 1.4 -6.7 1999 0.9 -35.7 2000 1.8 100.0 2001 1.8 0.0 2002 1.89 5.0 2003 1.9 0.5 2004 1.7 -10.5 2005 1.8 5.9 2006 1.9 5.6 2007 1.6 -15.8 2008 1.8 12.5 2009 -2.5 -238.9 2010 0.5 -120.0 2011 0.3 -40.0 2012 0.2 -33.3 Read More