Thursday, April 26, 2007

GDP & Disposable Income

FMCG may have to move to slow track as disposable income dips
Click here for article :)

This article states that despite the high annual growth of GDP of 11.2%, per capita disposable income is growing at a much slower rate of 7.7%. In other words, a smaller and smaller portion of the GDP is "going into the hands of consumers" as disposable income. GDP is equal to C +I+G+Xn, or Consumption + Investment + Government Spending + Net Exports (note:: consumption is directly related to disposable income). Therefore, because disposable income is becoming a smaller percent of GDP each year despite the rapid growth of GDP, the extra GDP must be going towards something else. This article claims that "
with each passing year, the corporate sector and the government are appropriating a larger share of the national economic pie. " This decrease in what is known as the private final consumption expenditure (PFCE), has led to a dramatic decrease in the expenditure of consumers on essential products including food, clothing, footwear, and personal care products. This decrease in the demand of "Fast Moving Consumer Goods" will lead to a new lower equilibrium quantity of these goods.

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