Essay on General Macroeconomic Trends and Conditions

Published: 2021-08-11
1130 words
5 pages
10 min to read
George Washington University
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Honduras is a country located in North America and is ranked as one of the poorest counties in the region. According to the World Bank, Honduras is a middle income country. This means that its GDP is neither very high nor very low. The average per capita income is $600. This means that the average earning for each of the citizens is about $600. Per capita income is calculated by dividing the total income by the total population. The per capita income for Honduras means that there are many people who are earning very little income and hence most of the population is living below poverty line. In the past few years, the economic growth has been on the rise. The average growth rate per year is about 7%. This means that the level of economic activities in the country has been increasing at the rate of 7% on average every year. The rate of unemployment is 29% meaning that about 29% of the population is actively looking for jobs but they are yet to get one.

GDP, Inflation and Trade Openness

The per capita GDP of a country is measured by dividing the total output of a country by the total population. The GDP per capita (PPP) refers to GDP converted into international dollars the purchasing power parity and then dividing it with the number of people in the country. GDP per capita (nominal) refers to GDP converted at the market exchange rate using the value of goods and services produced in the country and then divided by the total population. When the GDP is growing at the rate of 3.4%, it means that the total production of goods and services is increasing, and hence the level of economic activities (production) is growing. Growth rate from 2013 to 2017 was 2.8%, 3.1%, 3.6%, 3.6% and 3.7%. The average rate of inflation is 4.3%. From the year 2013 to 2017 the inflation rates were 5.2%, 6.1%, 3.2%, 3.1%, 4.1% respectively. Generally, the inflation rate has decreased since 2013.

Aspect of Economy that would Affect Decision

Poverty index is the ratio that indicates the standard of living of people in a country. When the poverty index is high, it means that many people are living below the poverty line. Honduras is ranked as one of the countries that have a high poverty index. As such, most people are not able to afford a decent living. They do not have enough money to afford a standard living and consequently their propensity to save is low. Despite the low level of income for the country, there have been general increases in the level of economic activities which have consequently led to an increase in economic growth rate.

Growth Prospects

According to the current trends, it is expected that the country will experience a high economic growth. There has been increased number of FDIs due to the few trade restrictions that allow foreign investors as well as trading with other nations. As the number of economic activities increase, there will be more money in circulation and hence the business organizations in the country are likely to perform well as people will have more money, and consequently a higher purchasing power.

Ease of doing business

World Bank ranks countries in order of their ease of doing business. The lower the rank, the more difficult it is to do business in the country. Economic factors such as competitiveness, corruption index, and economic index among others are taken into account in determining the ease of doing business.

Economic points that could be relevant to an investor

Political factors

Honduras has experienced economic instability for a long time in the past. There have been wars due to boundary disputes as well as revolutions. These created a poor environment for business. However, the situation has been different over the past 7 years. After the coup which was later reversed, the diplomatic relations between Honduras and other nations improved. Political volatility has been relatively low hence creating certainty for investors. As a result of the improved political stability, the economic growth has also started growing and hence there are higher chances that businesses will perform well in the future.

Independence of the central bank

Just like in any other country, the central bank of Honduras plays an essential role in the countrys economy. It is involved in major decision making. It also advises the government on the policies that should be implemented in order to attain better economic growth. However, the central bank is not independent in that its budget is usually approved by the government. This means that it cannot make financial decisions of its own. Its appointments are also influenced by the government since they have to be approved by the national assembly. This means that the countrys economy is largely under the influence of the government.

Economic Prospects

Short term economic prospects

In the recent years, the country has experienced a constant economic growth. This has been due to the political stability that has prevailed since the year 2010. The country has implemented policies that have favored economic growth. For instance, it has reduced the number of restrictions and legal requirements for doing business. As such, more businesses are able to start operations in the country without many obstacles. Consequently, more capital influx from investors has increased the amount of money in circulation and hence increased economic activities and purchasing power of the people. The increased economic activities means that there will be more production and hence better economic prospects both in the short term and in the mid -term.

Long term sources of growth

Solow growth model

This is a model used to measure economic growth of a country using three sources of GDP namely, labor, capital and knowledge. When labor increases, it means that more people will be employed and hence the rate of unemployment will reduce. It will also mean that people will have more income in their disposal and hence their purchasing power will be high. In turn, companies will produce more and hence the level of GDP will go up. On the other hand, when there is more capital in the economy, it means that more business organizations are able to start operations. As a result, there will be more production activities which will increase the total output of the country. When more business organizations open, employment opportunities will be created. More people will get work and hence their income will increase, consequently increasing their purchasing power. GDP will hence increase due to increased capital in the economy. More knowledge has the effect of increasing productivity and GDP respectively.

Long term prospects

Honduras is experiencing an increase in capital, labor and knowledge. This has been due to the high number of business organizations that have been starting operations in the country. The number of investments is expected to grow further due to the few restrictions that the government has implemented. Therefore, the long term growth prospects are highly positive.

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