19th November 2024 (10 Topics)

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Economic Slowdown

Context

Union Finance Minister Nirmala Sitharaman addressed concerns about a potential slowdown in the Indian economy, seeking to reassure both domestic and global audiences that there was no cause for undue worry. Her remarks were made in the context of growing apprehension about weakening economic indicators, such as faltering urban demand and weak corporate results, which some analysts have linked to a "cyclical slowdown."

What is economic slowdown?

An economic slowdown refers to a period when the growth rate of a country's economy slows down significantly.
It is characterized by:
- a reduction in economic activity, typically measured by lower GDP growth
- weakening industrial output
- faltering consumer demand
- reduced business investment
In India’s case, a slowdown is marked by weak urban demand, poor corporate earnings, and a dip in high-frequency economic indicators, such as production and consumption, which some economists attribute to cyclical factors, rather than structural changes.
A slowdown may be temporary, or it could be part of a larger economic transition.

Cyclical Slowdown

Structural Slowdown

A cyclical slowdown occurs as part of the natural business cycle, driven by fluctuations in economic activity.
It happens when the economy slows after a period of rapid growth, often triggered by factors such as reduced consumer spending, lower business investment, or high inflation.
Characteristics:
- Typically short-term.
- Linked to economic cycles like recessions and expansions.
- Often resolved when the cycle moves into a recovery phase.
Example: A slowdown during a recession, where demand falls, corporate profits decline, and unemployment rises, but the economy recovers as it moves out of the recession.

A structural slowdown is a more prolonged, deep-rooted slowdown that results from fundamental changes in the economy.
These changes can be due to shifts in industries, demographics, technological advancements, or global competition.
Characteristics:
- Long-term or permanent in nature.
- Caused by structural factors such as technological disruption, deindustrialization, or changes in the workforce.
- Difficult to reverse without significant policy intervention or restructuring.
Example: An economy facing slow growth due to a decline in traditional industries (e.g., manufacturing) and the rise of automation or digital technologies that disrupt labor markets.

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GS Analyst: Daily Current Affairs

19th November 2024 (10 Topics)

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Economic Slowdown

What is economic slowdown?

Still Have Questions?

GS Analyst: Daily Current Affairs

Economic Slowdown

What is economic slowdown?

Still Have Questions?

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